Gold prices closed at a record high, above $2,000 an ounce, on Tuesday and investors are getting even more bullish.
What happened: Bank of America released the summary of a call between its chief investment strategist and heads of its commodities, rates and technical strategy teams Tuesday that concluded gold was very well supported and could rise as high as $3,000 per ounce in the next 18 months.
The big picture: Globally, central banks and governments have announced $20 trillion of monetary and fiscal stimulus — $8 trillion of monetary and $12 trillion of fiscal, a number that represents around 20% of global GDP, they note.
“It’s just astonishing and breathtaking and you have to sort of pinch yourself sometimes to sort of realize that it’s actually happening,” Michael Hartnett, BofA’s chief investment strategist, said.
Central banks also are likely to continue to buy gold, helping underpin the price going forward, said metals strategist Michael Widmer.
The intrigue: The path for gold is also likely intertwined with the value of the dollar and U.S. real interest rates.
For gold to reach $2,500 an ounce Widmer predicts the dollar index would need to fall to near its 2018 low with real rates at -2% (nominal rates minus the rate of inflation).
But he could also see a scenario in which the dollar falls to its lowest since 2014 with real rates at -1.5%.
Between the lines: Escalating geopolitical tensions around the globe are also boosting safe-haven appetite for gold.
Two large explosions that rocked Beirut, killing dozens and leaving thousands wounded, “probably (added) to the shine of Gold above $2020,” strategists at Mizuho Bank said a note.
The bottom line: “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,” BofA analysts concluded.
“In addition, we believe that a clouded geopolitical chessboard further supports the case for our $3,000/oz forecast over the next 18 months.”
A woman wearing a dress made of cash, Germany, 1923.
THESE are the shocking images that reveal the full horror of hyperinflation in post Great War Germany ñ when money was literally worthless. In 1923, Germany was hit by one of the worst cases of hyperinflation in history, with 4.2 trillions marks worth just one American dollar. This out-of-control inflation began somewhat mildly during World War I, as the German government printed unbacked currency and borrowed money to finance military expenditures. The strategy was to pay off the debts by seizing resource-rich territories and imposing reparations on the vanquished Allies. But when Germany lost the war and ended up with massive debts, including huge reparations to be paid to the Allies under the Treaty of Versailles. The country found themselves in economic crisis and increasingly unable to afford the hefty reparation payments.
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