Date:
31st Aug 2020
Author:
CryptoGT
Could Gold Reach $3,000 by 2022?
The lustrous yellow metal has been reaching new highs in 2020. From the lows of March 2020, gold prices have increased 37%, touching the $2,000 mark on August 2, 2020. The precious metal is one of the most sought-after investments right now, as investors flock to it to tackle the unprecedented levels of market volatility and uncertainty.
The Coronavirus pandemic is far from over and from the looks of it, the markets will be reeling under its effects for some time. So, it’s not surprising that market analysts are predicting further bull runs for gold in 2020 and 2021. In an April report, The Fed Can’t Print Gold, analysts at the Bank of America predicted an 18-month price target of $3,000 for the yellow metal.
With sharp contractions in economic output, surge in fiscal outlays, increased market volatility and record low interest rates worldwide, investor demand for gold may continue to increase. A report by the World Gold Council, in August 2020, reveals that gold-backed ETFs and other investment products reached an all-time high of 3,785 tonnes in holdings, worth $239 billion, in July.
The prediction by the Bank of America could very well turn out to be true. Here are some reasons why.
The Coronavirus pandemic is far from over and from the looks of it, the markets will be reeling under its effects for some time. So, it’s not surprising that market analysts are predicting further bull runs for gold in 2020 and 2021. In an April report, The Fed Can’t Print Gold, analysts at the Bank of America predicted an 18-month price target of $3,000 for the yellow metal.
With sharp contractions in economic output, surge in fiscal outlays, increased market volatility and record low interest rates worldwide, investor demand for gold may continue to increase. A report by the World Gold Council, in August 2020, reveals that gold-backed ETFs and other investment products reached an all-time high of 3,785 tonnes in holdings, worth $239 billion, in July.
The prediction by the Bank of America could very well turn out to be true. Here are some reasons why.
The US Federal Reserve has been aggressive on its stance regarding interest rates, which are at historic lows, at 0% to 0.25%. The Bank of England’s benchmark interest rate is also at a record low level of 0.1%, while the BoE is even considering negative rates to pump up the British economy. This low interest rate environment globally is expected to continue for many months.
It is known that gold and interest rates have a negative correlation, given that low interest rates make other forms of investments, including currencies, stocks and government bonds, less attractive for investors. The US Federal Funds Rate, particularly, will have an impact on gold prices, since the metal is traded predominantly in US Dollars. Gold could surge against a backdrop of a devalued greenback.
It is known that gold and interest rates have a negative correlation, given that low interest rates make other forms of investments, including currencies, stocks and government bonds, less attractive for investors. The US Federal Funds Rate, particularly, will have an impact on gold prices, since the metal is traded predominantly in US Dollars. Gold could surge against a backdrop of a devalued greenback.
Billions of dollars in currencies have been printed and circulated by central banks to support their economies, yet the market is not seeing any significant signs of high inflation. In recent years, it has been seen that central banks’ large-scale asset purchases and ultra-low interest rates levels have been unable to eliminate the risk of deflation. The US Fed started to cut rates in mid-2019, to handle the US-China trade war and geo-political tensions. It has already exhausted its options to facilitate any further rate cuts. Even the Eurozone’s inflation rate peaked for the last time in November 2011, at 3%, after which it has steadily decreased. One of the prominent reasons for this is the decline in prices of oil and other commodities.
In both the US and the Eurozone, inflation expectations are lower than the inflation targets. According to Neo-Fisherian theory, inflation rates remain low when interest rates are low. As US Fed Chairman Powell recently remarked, while low inflation levels are necessary for economic growth, lower inflation expectations can lead to lower interest rates in tandem. A low interest rate environment is bullish for gold.
In both the US and the Eurozone, inflation expectations are lower than the inflation targets. According to Neo-Fisherian theory, inflation rates remain low when interest rates are low. As US Fed Chairman Powell recently remarked, while low inflation levels are necessary for economic growth, lower inflation expectations can lead to lower interest rates in tandem. A low interest rate environment is bullish for gold.
While the stock markets have been surging from time to time, volatility indices are also showing signs of fear. On August 27, 2020, the CBOE Volatility Index (VIX) rose 5%, as the S&P 500 rose 1%. The fear index has been on the high side in 2020, and various events, like increasing Covid-19 infections, absence of a Brexit resolution, US Presidential elections and more, will continue to trigger investor scepticism. Gold is a safe-haven investment for panic-stricken traders. Its price could be pushed higher by rising scepticism.
Investor demand for gold is at an all-time high. At the same time, there are bottlenecks in the gold supply chains, due to the Covid-19 scenario. Strict travel restrictions, lesser number of flights and border closures pose risks to gold delivery. Mine closures have also added to the woes. It isn’t that there is a sharp physical shortage till now, but the cost of delivery is significantly high. This situation is not likely to resolve anytime soon, leading to overall lack of balance between demand and supply.
All in all, the Covid-19 situation is expected to continue to impact gold prices. If the pandemic is brought under control, reduced financial volatility and a stronger US Dollar could put downward pressure on the precious metal.
All in all, the Covid-19 situation is expected to continue to impact gold prices. If the pandemic is brought under control, reduced financial volatility and a stronger US Dollar could put downward pressure on the precious metal.
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Cryptocurrency trading can be extremely risky and can lead to large and immediate financial losses. Crypto assets are highly volatile and can result in significant losses of your capital over a short period of time. Cryptocurrencies markets are unregulated services which are not governed by any specific regulatory framework. The provision of such services is not being directly provided by the Company but through licensed third parties.
CryptoGT does not provide its services to residents of various jurisdictions such as but not limited to the United States of America, North Korea and Cuba.
CryptoGT currently accepts only cryptocurrencies as method of deposit.