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James Hyerczyk

Gold futures are trading higher on Wednesday, helped by stable crude oil prices, firmer equity markets and a slightly weaker U.S. Dollar.

Earlier in the session, gold prices inched lower as a stronger dollar and dash for cash following a historic rout in U.S. crude oil futures curbed demand for the commodity.

After falling into negative territory for the first time in history on Monday, U.S. crude futures recovered slightly, but the market continues to be plagued by a mounting supply glut and a virus-led demand collapse.

Gold may come under pressure in the longer-term as it is used as a hedge against inflation and falling crude prices tend to rise deflationary pressures in the market. However, massive monetary and fiscal stimulus measures by global central banks, especially the U.S. Federal Reserve, and governments will keep gold supported.

Gold tends to benefit from widespread stimulus measures from central banks, as it is often seen as a hedge against inflation and currency debasement. On Tuesday, the U.S. Senate unanimously approved $484 billion in fresh relief for the world’s largest economy.

Gold to Reach $3,000 – 50% Above Its Record, Bank of America Says

Bank of America raised its 18-month gold-price target to $3,000 an ounce – more than 50% above the existing price record – in a report titled “The Fed Can’t Print Gold.”

The bank increased its target from $2,000 previously, as policymakers across the globe unleash vast amounts of fiscal and monetary stimulus to help shore up economies hurt by the coronavirus.

“As economic output contracts sharply, fiscal outlays surge, and central bank balance sheets double, fiat currencies could come under pressure,” analysts including Michael Widmer and Francisco Blanch said in the report. “Investors will aim for gold.”

BofA did warn about headwinds such as a strong dollar, reduced financial market volatility and lower jewelry demand in India and China, but “beyond traditional gold supply and demand fundamentals, financial repression is back on an extraordinary scale,” the report said.

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Daily Forecast

Once again, it’s not about gold, it’s about the U.S. Dollar. Increased demand for the greenback will weigh on gold prices over the near-term if both crude oil and stocks continue to weaken. Margin call worries and the need for cash to cover losses in crude oil is going to make the U.S. Dollar a more desirable asset than gold.

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