Gold Might Reach $3,000 per Ounce in the Next 12-18 Months

Analysts at Bank of America have forecast a possible rise in gold prices, projecting an increase to as much as $3,000 per ounce within the next 12 to 18 months. However, they point out that current market dynamics do not necessarily support such a high valuation at this time.

The firm explains that achieving the $3,000 target largely depends on a rise in non-commercial demand. They suggest that a rate cut by the Federal Reserve could be a catalyst, potentially resulting in increased investments in physically backed gold exchange-traded funds (ETFs) and greater trading activity.

Another crucial element in driving demand is the ongoing purchases by central banks. Bank of America notes that “the continued buying by central banks is vital, and efforts to lessen the reliance on the US dollar in foreign exchange reserves will likely lead to more gold acquisitions by these institutions.”

This shift is influenced by gold’s reputation as a long-term store of value, a hedge against inflation, and an effective tool for portfolio diversification.

In their analysis, Bank of America’s model examines various aspects, such as mining output, recycled gold availability, and jewelry demand. However, they also emphasize the necessity of considering investment demand to gauge a balanced market price. Currently, non-commercial purchases have maintained an average price of $2,200 per ounce year to date. A substantial increase in demand could elevate prices toward the $3,000 mark.

The report also references a recent survey by the World Gold Council, which indicates that central banks are planning to increase their gold holdings. This trend corresponds with heightened concerns about the stability of the US Treasury market, which may encourage both central banks and individual investors to diversify into gold.

While a collapse of the Treasury market is not the base case scenario for Bank of America, they recognize it as a potential risk. They conclude that in such a situation, gold prices might initially decrease due to widespread liquidations but are likely to recover afterward.