Bank of American neutral on gold price; no longer holding $3,000 target
In BoA's 2021 outlook presentation, Francisco Blanch, head of global commodities & derivatives research, and Michael Widmer, metals strategist at the bank, announced a significant shift in their gold forecast for 2021. The bank no longer expects prices to hit the $3,000 an ounce target.
"We are now neutral on gold," said Blanch. "We see a risk of rising long-term interest rates."
In its updated forecasts, the bank sees gold prices averaging the year around $2,063 an ounce.
"As the global economy opens up, gold faces more challenges, making it tricky to hit $3,000/oz; that said, the ongoing fiscal and monetary stimulus should push the yellow metal above $2,000/oz again," the bank's analysts said in its 2021 outlook report.
The comments come as gold prices continue to struggle to attract some buying momentum as the market test another critical support level. December gold futures last traded at $1,801 an ounce, down 2% on the day.
Bank of American made headlines in April as they expected significantly higher gold prices due to strong momentum and significant monetary policy action from central banks.
In Tuesday's presentation, BoA expects that energy commodities, which suffered significantly in 2020, will outperform next year as the economy recovers from the devastation caused by the COVID-19 pandemic. At the same time, the analysts are also bullish on industrial metals, particularly copper and nickel.
As energy prices outperform commodities next year, the analysts expect Brent Crude oil to rise to $60 a barrel by the summer.
"We see a world in a cyclical recovery, and that means we could see higher interest rates," Blach said. "We are not outright bearish on gold. Fiscal stimulus programs will keep investors in the market, but eventually, there is a big rotation underway, and in a cyclical commodities rally, there is some likelihood of precious metals becoming lighter."
Widmer noted that rising inflation could be met with higher nominal interest rates. He said the question is whether inflation increases faster than nominal interest rates to keep real interest rates lower.
Blach said that the big shift in their gold outlook is because of the recent vaccine news. He explained that markets were expecting vaccines to be about 60% effective, which would have meant a slower recovery.
He added that the 90% effectiveness of all three potential vaccines could mean that life gets back to normal quicker in 2021.
"I think that's what the markets are starting to pricing and why we've had such a big rotation in such a short period of time," he said.
The bank has lowered its outlook for silver, but they see the metal outperforming gold as its industrial demand picks increases in a global economic recovery.
Widmer added that silver's outlook remains bright as a new focus on green energy could increase demand for solar panels.
"Silver is our preferred play on rising investment in solar panels," the analysts said in their report.
Bank of America expects silver prices to average next year around $29.13 an ounce.