Gold should benefit from the increase in the balance sheet of central banks, judge Bank of America, which now targets … 3,000 on the course of the ounce!
Gold is on the rise. Following a slump in the price of the ounce during the generalized stress peak in the markets, it registered a new annual high this month. Since then, it has declined slightly, but has recently been supported by its 20-day moving average. The big banks are getting more and more positive about gold. Bank of America has also raised its target price for 18 months to gold from 2,000 to… 3,000 dollars, judging that the increase in the balance sheet of central banks could put fiduciary currencies under pressure and encourage a craze for gold. . “The Fed cannot print gold,” said the American bank.
There is much to be said for a sustainable rise in gold. “Gold does not generate dividends or coupons, unlike stocks and bonds, so the more interest rates get close to zero, even negative, the more it makes buying gold interesting, ”said Antoine Fraysse Soulier, head of market analysis at eToro. However, due to the current crisis, central banks have drastically reduced their key rates. “This has mechanically lowered interest rates, making bonds less attractive. The same is true for equities, which have lost on average between 20 and 30% and whose dividends, for some, are going to be deleted“, Explains the expert.
In addition, central banks, including those in Russia, China and India continue to build up their gold reserves. “In 2018, 651 tonnes were purchased, a record. Institutional investors are not outdone. In the 1st quarter, ETFs backed by yellow metal recorded a historic record, with $ 23 billion in inflows, according to the World Gold Council, “said Antoine Fraysse Soulier. Finally, while stress in the equity markets does not seem not about to fade, gold could continue to benefit from its safe haven status.
“Capital flows did not wait for the stock market shock of February / March last to arbitrate in favor of precious metals and the price of gold”, notes Vincent Ganne (member of AFATE), market analyst senior and Business Development Manager at TradingView. “Institutional traders began increasing exposure to buying at the start of the trade war and when the negative effects of the trade war shattered the dynamics of Chinese growth,” said the expert. The chart below shows the bullish reversal of the open position in the gold futures contract from mid-2018.
TradingviewIn the heart of the fall in stocks, between March 10 and 17, the price of gold however dropped from 1,700 to 1,450 dollars. “Asset management was looking for cash to cover margin calls on stocks,” said Vincent Ganne, “a parenthesis closed.”
In relative and long term (the graph shows the monthly Japanese candles with a logarithmic scale), “the trend in the price of an ounce of gold has been bullish since 2001 and therefore closer to us since 2018. This underlying movement is now fueled by rising volatility in risky assets (like stocks, editor’s note) but remains hampered by the relative value of the US dollar, ”notes the expert. Indeed, gold and the dollar often move in the opposite direction, because gold, quoted in green notes, becomes mechanically more expensive for buyers with other currencies, when the American currency appreciates.
The rise in the price of gold “is not and will not be vertical but remains driven by institutional finance. Technically, historical records are in sight for this year 2020, the area between 1,795 dollars and 1,920 dollars. The technical guarantor of the background dynamic is at 1,550 dollars ”, says Vincent Ganne. It would therefore be advisable to be more careful on the yellow metal, if this support were to be pressed.