One of the leading U.S. banks - Bank of America Merrill Lynch - expects the price of gold to exceed $1300 per ounce next year. The price growth of the precious metal would be supported by several fundamental factors including strenghtening worries about the U.S. budget deficit widening its negative gap which is getting harder to fund with tightening financial conditions amid the Federal Reserve hiking the interes rates to fight the inflationay pressure. Another positive factor for the gold bulls is the U.S. President Trump’s administration which is keen on worsening the trade war tensions with China. That policy would hurt the economic growth in the country, lifting the save-haven asset’s prices.
Trumps’ tax reform supported the bullish rally in equties, boosting corporate profits in the United States. On the other hand, the problem for U.S. Treasury is that the Federal Budget balance worsened in 2018, leaving a huge hole to be filled with external borrowings which are getting more expensive as 10-year Treasury yields were rising throughout the whole year. Bank of America Merrill Lynch Head Analyst for commodities and derivatives Francisco Blanche predicts the average price of gold at $1350 per ounce in 2019. That’s even not the highest prediction, given the speculations around a possible financial crisis to come shortly.
“We’re constructively tuned for gold prices in the long-term perspective in the lgith of worries about the U.S. economic growth, though it looks relatively robust nowadays. Strong dollar and interest rates weigh on gold currently. But the huge gap in the U.S. Federal budget balance deficit is rather positive for gold”, - Blanche noted.
Blanche’s opinion is similar to billionaire Ray Dalio’s position, who manages a hedge fund. He forecasted earlier this month that U.S. economic slowdown would start in two years from now approximately, causing the dollar’s crash whereas the government keeps printing money in order to fund the growing budget deficit. Investment Bank Goldman Sachs also looks positive for the gold price prespective, forecasting an average price of $1325 in 12-month horizon.
Congressional Budget Office predicted earlier that the tax cut together with new federal spendings might lead to the budget deficit of $1 trillion in 2020. That forced U.S. Treasury to increase the goivernment bond sales up to a level which was seen the last time after the financial crisis ended in 2009. Gold is currently trading around $1235 mark, trying to hold the recent gains after the worst downfall period since 2013.
Recalling BofA Micheal Widmer’s prediction in August that the average gold price would exceed $1350 in the first quarter of 2019, reaching the high-level of $1441 per ounce in 2022. Two key factors would have the impact on growing price of gold: inflationary pressures and U.S. economic slowdown.