NEW YORK (Scrap Register): A sustainable breach above $1,300 is within reach for gold, and prices can even surge to $1,400 in early next year, said one of the major American bank.
Bank of America Merrill Lynch’s bullish outlook is supported by lower long-term U.S. interest rates, the bank’s global head of commodities research Francisco Blanch told Bloomberg this week.
The U.S. Federal Reserve has not been raising interest rates as aggressively this year as some analysts have predicted, while the European Central Bank is looking to start scaling back its quantitative easing program.
“The ECB is embarking on a tightening cycle, without having addressed the structural issues within the euro zone. So from a gold perspective, you’re in for a cycle where we probably saw the lows a few months ago, and now we’re going to be on a stronger path,” Blanch said.
“Some of that leads to a higher euro eventually, combined with more stagnant long-term rates in the U.S., and that’s a tailwind for gold,” he added.
Also, strengthening euro due to shifting economic cycles between the U.S. and Europe will likely boost gold price in dollar terms, Blanch pointed out.
Gold already rose around 12% this year and is now trading right below its key psychological level of $1,300. December Comex gold was last seen at $1,295.20, up 0.33% on the day.
This rally was partly supported by a weaker U.S. dollar, domestic political turmoil, as well as geopolitical tensions between the U.S. and North Korea, according to Blanch.
The biggest risks to BAML’s optimistic outlook include the Trump administration delivering on reform promises after all and investors opting for cryptocurrencies over gold.
BAML is the latest bank to adopt a more bullish gold position, joining the ranks of others like VTB Capital JSC. Last week, Evgeny Ananiev, head of precious metals at the Russian bank, said he expects gold to jump to $1,400 by year end.
Also, Bridgewater Associates founder Ray Dalio recently advised all investors to allocate at least 10% of their portfolio to gold. Dalio’s comments were echoed by Dennis Gartman, the editor and publisher of The Gartman Letter, who said that every portfolio should have about 10-15% allocated to gold.