Increasing demand by investors, geopolitical tensions, central bank demand, and federal monetary policy could see gold climb to $3,000 per ounce within the next year to 18 months, according to a bullish outlook on the yellow metal by a Bank of America analyst.
The note published by Michael Widmer, a commodity strategist at the bank, lays out the economic conditions that could set the table for gold to skyrocket.
The analysis comes nearly a month after gold traded at an all-time high of $2,450 per ounce on May 20. Since then, gold hasn’t come close to touching those lofty heights again. But the commodity has continued its strong run, up more than 20% over this time in 2023. In Monday afternoon trading, gold continued to gain for the day, up $14.36 at $2,333 per ounce.
Here are a few reasons why Widmer is supporting a case for $3,000 gold.
First, he cites a resurgence in investor demand beginning last year and reports that private purchases and central bank acquisitions accounted for 49% and 43% of purchases in 2023, respectively.
Second, robust demand from central banks has played a key role. Indeed, a survey published last week by the World Gold Council found that nearly one-third of central banks said they planned to increase their gold reserves in the next year. Additionally, the survey by the industry trade association reported that central banks added 1,037 tons of gold to their reserves last year – the second-highest annual purchase in history – following a record high of 1,082 tons added in 2022.
Third, there’s the declining share of the U.S. dollar in favor of commodities like gold as central banks move to diversify their reserve portfolios. China, the world’s largest gold buyer, exemplifies this trend.
The People’s Bank of China, for example, increased its gold holdings by 8 million ounces, equivalent to $51 billion, since January 2023. Concurrently, the analysis states China’s holdings of U.S. Treasuries have plummeted by $102 billion over the past year, reaching a 25-year low of $767 billion in March 2024
“While the motivation of individual central banks for owning gold may vary, many reserve portfolios have one thing in common: the share of USD has been declining, while gold holdings have risen,” Widmer wrote.
Finally, there’s gold’s reputation as a safe haven in times of economic or political uncertainty, of which both are in high supply lately. If the Federal Reserve decides to cut interest rates and the dollar weakens later this year and into 2025, Widmer predicts investor buying will drive gold prices higher.
