Bank of America has hiked its 18-month target for gold from US$2,000 to US$3,000 per ounce.
"As economic output contracts sharply, fiscal outlays surge, and central bank balance sheets double, fiat currencies could come under pressure and investors will aim for gold," the bank says in a research note today.
"True, a strong US dollar backdrop, reduced financial market volatility, and lower jewelry demand in India and China could remain headwinds for gold," it states. "But beyond traditional gold supply and demand fundamentals, financial repression is back on an extraordinary scale."
Lower GDP growth rates around the world will continue to fuel massive monetary easing, the bank says.
"One of the most intriguing developments ahead is that U.S. GDP could drop by 30% year on year in the second quarter of 2020, the steepest collapse ever in modern history," the report states. "Other countries like Japan will likely experience a 21.8% decline in output, while China just reported a contraction of 6.8% in 1Q20. As central banks rush to expand their balance sheets and backstop the economy, a lot of risks could effectively be socialized, boosting the appeal of gold."
"In aggregate, major central bank balance sheets have been stable at around 25% of GDP for the last decade or so. But clearly COVID-19 has started a race to increase balance sheets and save domestic asset values."
The report's authors also noted that gold, unlike oil or natural gas, "is not constrained by storage dynamics and its price is not necessarily mean-reverting to the marginal cost of production over the long run."
The bank, which describes itself as "long-term gold bulls," forecasts gold will average US$1,800 per oz. in the fourth quarter of this year and hit US$2,250 per oz. in the third quarter of 2021.