The economic impact of the Coronavirus could result in Gold rates almost doubling.
A Bank of America Securities analysis observers Gold rates soaring by 77.61 percent from $1,689 pre troy ounce to $3,000 per troy ounce. Gold has been trading in a range of $1680 t0 $1710 per troy ounce in the last three trading sessions.
The report titled 'The Fed can’t print gold' authored by analysts Michael Jalonen and Lawson Winder says "As central banks and governments double their balance sheets and fiscal deficits, respectively, we have also decided to up our 18-month gold target from $2,000 to $3,000/ounce."
"As economic output contracts sharply, fiscal outlays surge, and central bank balance sheets double, fiat currencies could come under pressure. And investors will aim for gold. Hence, we mark-to-market our forecasts and now project average real gold price of $1,695/ounce in 2020 and $2,012/ounce in 2021," Jalonen and Winder said.
The 10-year average (2020-2029) price for gold and silver stands at $1,692/ounce and $17.97/ounce, respectively.
Uncertainty, the scale of coronavirus has prompted central banks to crop interest rates thereby limiting expectations for bond-returns. Equities and Commodities remain the two major avenues for investment and there is a likelihood of Bullion allocations increasing in the near term. The authors also comment that the Fed
"Another important point to remember is that, just as central banks are socializing risk in financial markets, governments are increasing their spending like never before during peacetime..."
"Investment demand has correlated strongly with gold prices in recent years, and we expect precisely this group of buyers to drive gold prices higher."
However, the road to $3000 mark may not be a straight one. Prospects of a stronger gain in Gold depend majorly on a weaker Gold and increase in demand from China and India, the world's two largest consumers of Gold. The dollar index has gained its supremacy in recent times and should contain Gold's ascent. Also, consumption factors such as lockdown in India, probability of a blip in India's rural economy, coupled with nascent demand from China are limitations at the moment.
The author's optimism falls short in a crisis period when governments and agencies including the US Federal Agency are looking at situations needing additional stimulus. This could add to volatilities in currency markets. The second major challenge is production and supply chain. Countries such as Switzerland which play a crucial role in distribution and refining are witnessing a locdown.
In India, jewelers may not open for Akshaya Tritiya, the biggest festive season to buy Gold, however, that has not stopped Gold raging to 46,000 levels on MCX.