A Bank of America (BOFA) commodity strategist has postulated that gold, should it continue to flourish in 2023, could pave the way for a climb to $2,500 per ounce. Presently priced at $1,983 per unit, the precious metal remains just shy of the $2,000 threshold. However, if it were to achieve the projected $2,500 target, its value would need to rise by more than 26% against the U.S. dollar.
‘Non-Commercial Purchases Do Not Need to Increase Materially to Justify Gold Hitting $2,500,’ Says BOFA Commodity Strategist
In 2023 thus far, gold has demonstrated admirable performance, with its price soaring by over 19% in the span of six months. The past 30 days, in particular, have seen a noteworthy 1.33% spike in the price of this treasured metal. Furthermore, a recently-released memo from a BOFA commodity strategist opines that, to realize the envisioned $2,500 per ounce milestone, gold need not scale much further in value.
“Bottom line: non-commercial purchases do not need to increase materially to justify gold hitting $2,500/oz this year,” the BOFA strategist stated.”Inflows into ETFs will be critical and dynamics in 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 purchasing large amounts of gold in 2023. China, for one, boosted its gold stockpile by 18 tons in March, propelling its national reserve’s holdings of the precious metal to 2,068 tons. As reported by the World Gold Council, the trend of central banks’ gold acquisitions, which started in 2022, has continued into 2023. Additionally, statistics from Google Trends reveal that during the first week of April 2023, the search query “how to buy gold” garnered a perfect score of 100.
Despite a note from BOFA senior economist Aditya Bhave, released in early March 2023, which he predicted the Fed would persist in raising rates, the subsequent report by the bank’s commodity strategist projected an end to rate hikes. “Influenced by the recent banking turmoil, markets are pricing imminent rate cuts,” the strategist opined this week. “At the same time, core inflation has been sticky and elevated price pressures, for example in shelter, highlight the risk of second round effects.”
The BOFA strategist added:
This confirms our long-held view: central banks have no silver bullet for fighting inflation and this should ultimately bring investors back to the market. The end of the hiking cycle will be critical for the yellow metal.
With the next Federal Open Market Committee (FOMC) decision less than a week away, investors find themselves grappling with uncertainty as to whether the Fed will hike rates or not. The CME Group Fedwatch tool reveals that 84.5% of the market is anticipating a 25 basis point rise, while 15.5% believe that the Fed will hold rates steady, with no increase in May. The U.S. central bank’s possible reversal of its hawkish monetary policy could be influenced by the sustained upheaval in the country’s banking industry.
In particular, market analysts have been closely monitoring the recent turbulence at First Republic Bank, the nation’s 14th largest bank, which experienced a drastic 50% plunge in value during a single trading session followed by a 30% decline the following day before trading was halted. While the stock has since rebounded, gaining 13% on April 27, 2023, First Republic Bank’s stock has plummeted by 94% over the past six months. In a recent announcement, the bank attributed the massive outflow of $100 billion from its coffers in March to customer withdrawals.
What do you think about the potential rise of gold to $2,500 per ounce in 2023? Do you believe central banks’ gold acquisitions and inflation concerns will continue to fuel its growth? Share your thoughts in the comments section below.