Gold prices closed above $2,000 per ounce for the first time in history. This is the latest signal that a bull market in precious metals is well underway. Since bottoming in late March at $1,498 per ounce, gold has rallied 33%. It did so as governments around the world have turned on their printing presses in an effort to boost their economies.
Investors are betting that the trend will continue in both. They say so because of gold climbing higher as the government print more and more money.
Analysts with Bank of America Global Research have predicted that gold prices will surge another 50%. They say it will happen over the next 18 months. This may push the price of an ounce of gold to $3,000. And it’s not just gold, but all precious metals that stand to benefit according to the analysts.
They add that because of falling bond yields and near-zero interest rates, there are multiple ways that gold could quickly climb to $2,500 per ounce.
Michael Widmer, metals strategist at Bank of America said in a recent research note, “When you’re looking at what levels we would need to see gold at $2500 per ounce, it is combinations like the DXY (the ICE U.S. Dollar Index) at 90 and real rates (10-year Treasury note yield) at minus 2. That will take gold to $2500. The DXY at 85 and real rates at minus 1.75 will also take you to $2500. DXY at 80 and real rates at minus 1.5 also take it to $2500 an ounce,” Widmer said.
Carlo Alberto De Casa, chief analyst at ActivTrades, says that investors are watching to see how the next coronavirus stimulus package shapes up here in the US to see how much additional money the Federal Reserve will be printing. De Casa says any large increase could be the catalyst for the next surge in gold prices.
“It is clear the resistance level of $2,000 is a strong threshold for the price and significant volumes are placed there,” he wrote. “Any news regarding new monetary stimulus from the US Federal Reserve could trigger gold to break up the resistance level of $2,000.”
Horizons ETFs portfolio manager Nick Piquard says the longer the coronavirus pandemic drags on, the more dollars the Federal Reserve will have to print as stimulus.
“Investors are seeing that this COVID crisis isn't going to go away anytime soon. The cases keep going up globally. And the longer it takes, the more debt needs to be created,” Piquard said. “Congress is debating right now about how many trillions of dollars they're going to have to spend for a new stimulus after having already spent trillions of dollars.”
Piquard says that will inevitably push gold prices higher. “The U.S. is probably going to have to print a lot of dollars to bail out all this debt. That’s really fuelling the gold rally.”
And once the pandemic is behind us, he says there will be too much stress on the system to raise taxes and pay off all the debt. “After all that money has been spent, it's not like you're going to be able to raise taxes to get that money back, or it's not going to be easy to raise rates. The market is anticipating that the Fed is going to have to do more. And all those things are just beneficial for gold.”
Piquard says there’s an easy way to tell when the gold rally has ended.
“Silver price generally makes new highs towards the end of a gold bull market,” Piquard said. “The reason for that is because silver is more of an industrial metal, which is used more in the economy. So when silver starts rallying, that implies that the economy might be picking up.”
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