Fox Business/Jonathan Garber
Gold spikes to record as BofA predicts $3K price tag
Prices for gold earmarked for December delivery climbed to a record high above $2,000 an ounce on Tuesday, outstripping shorter-term futures contracts after the COVID-19 pandemic disrupted jewelry sales and led to a buildup of physical supplies.
Gold for December delivery rose $35.10 to close at $2,021 an ounce while front-month futures contracts, for August delivery, settled at $2,001.20.
While the virus has caused disruptions on the physical side of the market, it’s also changing the landscape for how investors view the precious metal.
Already, governments have injected $20 trillion of fiscal and monetary stimulus, making up 20 percent of global gross domestic product. During the pandemic, investor demand for the metal has increased to 45 percent of the market, up from 25 percent.
“The global pandemic is providing a sustained boost to gold due to increased savings, growing inequality, vast capital destruction, declining productivity, rising public debt levels, and, most importantly, falling equilibrium real interest rates,” according to strategists at Bank of America, who think the precious metal will reach $3,000 an ounce over the next 18 months.
Red Rock Secured/Sean Kelly
Gold Roars Past $2,000! Silver Can’t Be Stopped!
Why Even Higher Gold and Silver Prices Are Headed Our Way!
It isn’t even close! The numbers are in for July and silver was far and away the best performer of all the major financial assets.
For the entire year 2020 it’s the same thing. Silver is the top performer, followed by gold. And that was before gold moved above $2,000 and silver surged past $25.
Now Washington and Federal Reserve officials are doing everything possible to keep precious metals outperforming.
It’s not exactly like they want gold and silver to outperform everything else. They probably don’t. But they do want to do more of the things that put precious metals across the finish line for the, ahem, gold and silver medals.
Right now, Federal Reserve officials are falling all over themselves urging more government spending.
The Fed is expected to make a major commitment to ramping up inflation soon
In the next few months, the Federal Reserve will be solidifying a policy outline that would commit it to low rates for years as it pursues an agenda of higher inflation and a return to the full employment picture that vanished as the coronavirus pandemic hit.
Recent statements from Fed officials and analysis from market veterans and economists point to a move to “average inflation” targeting in which inflation above the central bank’s usual 2% target would be tolerated and even desired.
To achieve that goal, officials would pledge not to raise interest rates until both the inflation and employment targets are hit. With inflation now closer to 1% and the jobless rate higher than it’s been since the Great Depression, the likelihood is that the Fed could need years to hit its targets.
“We believe that the Fed publicly would welcome inflation in a range of 2% up to 4% as a long overdue offset to inflation running below 2% for so long in the past,” said Ed Yardeni, head of Yardeni Research.
The investing implications are substantial.
Yardeni said the approach would be “wildly bullish” for alternative asset classes and in particular growth stocks and precious metals like gold and silver. Guha said the Fed’s moves would see “real yields persistently lower, the dollar lower, volatility lower, credit spreads lower and equities higher.”
Market Watch/Steve Goldstein
‘Ample room’ for more gold gains as hedge funds late to the party, adviser says
If you adjust for inflation, gold still has to climb to $2,800 per ounce to surpass 1980 levels.
But gold bulls aren’t complaining as futures for the yellow metal topped $2,000 in nominal terms for the first time. At $2,052 in the early hours of Wednesday, gold GC00, 1.96% has climbed 35% this year.
So the question is whether the gold rally can last.
What has fueled it so far is the aggressive fiscal and monetary policy action, in the U.S. and across the world, which has helped cushion the economic blow from COVID-19 and sent interest rates lower but also led to a rise in inflation expectations.