Bank of America sees Gold at Rs 80,000 per 10 grams by December 2021
A couple of months ago, BofA made a forecast of USD 2000 per oz for gold in 18 months. But it thinks that the GOLD shall touch USD 3000 per oz in 18 months. What has changed since the first forecast which makes BofA upgrade the target price by 50%?
Fransisco Blanch from BofA throws light on the matter. There are three reasons:
- Fiscal & Monetary policies across the world are extremely laxed. Interest rates across major economies are near zero of all time lows.
- The amount of money printing by central banks around the world is unprecedented.
- The bank deposits are ballooning. Investors don’t know what to do with them while the interest rates are either zero or below inflation.
All three factors in combination will see eventual rotational flow of money into the yellow metal i.e. Gold. This is expected from not only retail investors, but by institutional investors as well. The current phase is similar to 2009 when gold prices starting rising very rapidly. That happened because FED had started to print currency at an alarming pace then. The only difference between 2009 and 2020 is that FED has printed more money in 18 days in 2020 than what it did in 9 months in 2009.
We are likely to see great deal of dichotomy in the economy. Earlier, low growth could mean low inflation. But now, it may actually lead to low growth + Low interest rates + higher inflation (called as stagflation). That’s because of geo political tensions, lower productivity, lower employment and localization of manufacturing. Even if a COVID vaccine is announced in couple of months now, that is not going to fix the economy in a hurry. The unemployment problems is likely to last for several years.