Analysts at Bank of America say gold is often seen as a safe haven asset during times of global turmoil, but war and geopolitical conflict are often not drivers of long-term growth in gold prices.
In fact, gold has actually dropped 2% in a week since Israel began air strikes in Iran. Meanwhile, as reported on Saturday, tensions are increasing B-2 stealth bomber It was sailing across the Pacific Ocean. That’s because President Donald Trump weighs in on the involvement of the conflict, and bombers may put down large-scale “bundle nemesis” on severely strengthening Iran’s nuclear ruins.
BOFA analysts said in a Friday note that they expect gold prices to reach $4,000 per ounce next year, an increase of 18% from current levels.
“Although the war between Israel and Iran can always escalate, conflict is not usually a constant bullish price driver,” they wrote. “The trajectory of U.S. budget negotiations will therefore be crucial, and if fiscal shortages do not decline, the consequences for the market combined with market volatility may eventually attract more buyers.”
Israel-Iran’s conflict has taken the attention away from Trump’s tax and spending bill. Despite the critical differences in the House and Senate versions that need to be checked before they become law, the fiscal impact of the bill is still expected to increase trillions of dollars to the U.S. deficit in the coming years.
This raises concerns about the sustainability of U.S. debt and global demand for a flood of fiscal bonds that will fund all red ink. The dollar’s dollar (a asset traditionally seen as a safe haven) has also suffered in the Trump trade war, suffered from the subpoena of other top currencies and provided more space for gold.
Michaela Handrek-Rehle – Bloomberg by Getty Images
Central banks around the world have Dumped $48 billion in Treasury bonds Since late March. At the same time, central banks continue to buy gold, continuing the trend that began a few years ago.
recent World Gold Council investigation Discover geopolitical instability and Potential trade conflicts The main reason for being a central bank in emerging economies is Turn to gold Much faster than developed economies.
BOFA estimates that central banks hold gold as much as 13% of U.S. outstanding debt accounts for 18% of U.S. public debt.
“This should be a warning from U.S. policymakers. Ongoing concerns about trade and U.S. fiscal deficits are likely to shift more central banks from U.S. Treasury to gold,” analysts warned.
At the same time, the market does not seem to be overexposed to gold. BOFA estimates investors allocated only 3.5% of their portfolio to gold.
Analysts say the deficit will remain high regardless of how Congress ultimately rewrites the budget bill.
“So, regardless of the outcome of the Senate negotiations, the market’s focus on fiscal sustainability is unlikely to disappear.” “Then interest rate volatility and weaker dollar should remain supportive, especially if the Treasury Department or the Fed are ultimately forced to step in and support the market.”
