Few investments have rallied during this unusually volatile year other than long-term Treasurys and gold. The yellow metal has gained roughly 15% year to date, less than the whopping 20% gain in long-term Treasurys, but it’s headed higher, according to Bank of America.
Its analysts are forecasting gold prices averaging close to $2,100 per ounce next year, up from around $1,750 currently, then jumping to $3,000 an ounce before year end 2021 (in 18 months). The current gold price record is $1,900, set in September 2011.
Except for a brief retreat in mid-March, gold prices have been gaining steadily this year because the precious metal is seen as a store of value during the global recession as central banks swell their balance sheets and maintain near or below zero real interest rates and governments expand fiscal stimulus.
“The Fed can’t print gold,” write the BofA analysts. In other words, it can’t devalue the yellow metal, but Fed policies and those of other central banks, coupled with a surge in fiscal spending, can pressure government-supported (fiat) currencies, according to the BofA analysts. “Gold has outperformed every G-10 currency so far this year and also in 2019.”
They note, “If central banks double their balance sheet as GDP contracts, gold prices will push higher.”