A commodity strategist at Bank of America (BOFA) has postulated that gold, if it continues to boom in 2023, could pave the way for a climb to $2,500 an ounce. Currently priced at $1,983 per unit, the precious metal remains just below the $2,000 threshold. However, if it were to reach the expected target of $2,500, its value would have to increase by more than 26% against the US dollar.
“Non-trade buying doesn’t need to rise materially to justify gold hitting $2,500,” says BOFA commodity strategist
In 2023 so far, gold has shown an admirable performance, with its price soaring by more than 19% within six months. The last 30 days, in particular, have seen a notable 1.33% increase in the price of this precious metal. Additionally, a recently posted memo of a BOFA commodity strategist believes that to hit the envisioned milestone of $2,500 an ounce, gold doesn’t need to rise much more in value.
“Bottom line: non-commercial buying doesn’t need to increase materially to justify gold hitting $2,500/oz this year,” the BOFA strategist said. “Inflows into ETFs will be critical and the dynamics of assets under management will be a crucial indicator confirming whether price gains can be sustained.
The note comes at a time when central banks have been buying large amounts of gold in 2023. China, for its part, increased its stockpile of gold by 18 tonnes in March, propelling the holdings of its national reserve of the metal valuable at 2,068 tons. As reported by the World Gold Council, the trend of gold acquisitions by central banks, which began in 2022, continued in 2023. Moreover, statistics from Google Trends reveal that during the first week of April 2023, the search query “how to buy gold” got a perfect score of 100.
Despite a note from BOFA’s senior economist, Aditya Bhave, released in early March 2023, that he expected the Fed to persist in raising rates, the subsequent report by the bank’s commodities strategist predicted an end to rate hikes. rate. “Influenced by the recent banking turmoil, markets are pricing in imminent rate cuts,” the strategist said this week. “At the same time, core inflation has remained rigid and elevated price pressures, for example in housing, highlight the risk of second-round effects.”
The BOFA strategist added:
This confirms our long-held view that central banks don’t have a magic bullet to fight inflation and this should ultimately bring investors back into the market. The end of the hike cycle will be critical for the yellow metal.
With the next decision from the Federal Open Market Committee (FOMC) less than a week away, investors find themselves grappling with uncertainty over whether or not the Fed will raise rates. THE CME Group’s Fedwatch Tool reveals that 84.5% of the market expects a 25 basis point hike, while 15.5% believe the Fed will hold rates steady, with no hike in May. The possible reversal of the hawkish monetary policy of the US central bank could be influenced by the sustained upheaval in the country’s banking sector.
In particular, market analysts have been closely watching the recent turmoil at First Republic Bank, the country’s 14th largest bank, which suffered a drastic 50% drop in value in a single trading session. followed by a 30% drop the next day before trading was halted. . While the title has since rebounded, earning 13% on April 27, 2023, First Republic Bank stock fell 94% in the last six months. In a recent announcementthe bank attributed the massive $100 billion outflow from its vaults in March to customer withdrawals.
What do you think of gold’s potential rise to $2,500 an ounce in 2023? Do you believe central bank gold acquisitions and inflation fears will continue to fuel its growth? Share your thoughts in the comments section below.
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