Gold prices should reach $4,000 as the deficit could cover the Israeli-Iran war
According to analysts at Bank of America, gold is considered a safe stock asset during times of global turmoil, but wars and geopolitical conflicts are not usually the long-term growth factor for gold prices.
In fact, since Israel launched airstrikes in Iran, gold has actually immersed 2% a week. Meanwhile, as the Saturday report said, tensions are growing stronger B-2 Stealth Bomber Heading towards the Pacific Ocean. That’s because President Donald Trump is involved in the conflict, and bombers could drop a massive “bunkerbuster” on a highly-enhanced Iranian nuclear site.
In a memo on Friday, BOFA analysts said they expect gold prices to reach $4,000 per ounce next year, representing an 18% jump from current levels.
“While the Israeli-Iran war can always escalate, conflicts are not usually sustained bullish price drivers,” they write. “So the US budget negotiation trajectory is important and if the fiscal shortage does not decrease, the fallout from its positive market volatility will attract more buyers.”
The Israeli-Iran conflict has attracted attention as it passes through Congress from Trump’s tax and spending bills. While the House and Senate versions have important differences that need to be settled before they become law, the bill’s financial impact is expected to add trillions of dollars to the US deficit over the coming years.
It raised fears about the sustainability and global demand for US debt to floods of financial debt issued to fund all Red Ink. And during Trump’s trade war, the US dollar, traditionally considered a shelter asset, has slumped over other top currencies, offering more benefits to gold.
Michaela Handrek-Rehle—Bloomberg via Getty Images
There are central banks all over the world Dumped $48 billion in Treasury It’s only been since late March. At the same time, central banks continue to buy gold, continuing the trend that began several years ago.
recently Survey from the World Gold Council Geopolitical instability and Potential trade disputes The main reason why central banks in emerging economies are Move towards the gold At a much faster rate than the developed economy.
Bofa estimated that central bank gold holdings now amount to less than 18% of unpaid US public debt, up from 13% a decade ago.
“That tally should be a warning to US policymakers. Continuing arrests for trade and US budget deficits may divert more central bank purchases from the US Treasury to money,” analysts warned.
Meanwhile, the market still doesn’t appear to be overexposed to gold. Bofa estimated that investors have only been allocated 3.5% of their portfolio.
And regardless of how Congress is supposed to rewrite the budget bill, analysts said the deficit will continue to rise.
“Therefore, market concerns about fiscal sustainability are unlikely to decline regardless of the outcome of Senate negotiations,” Bofa predicted. “Rate volatility and weaker US dollars will need to continue supporting gold, especially if the US Treasury or the Fed are ultimately forced to step in and support the market.”