BoA on the factors needed for gold to trade higher (& forecasts for XAU & XAG)
Bank of America / Merrill Lynch on gold and silver forecastsComments from the analysts at the bank, in brief:
- uncertainty over how the interplay between nominal rates, breakeven inflation and real rates will play out has been the root cause of gold's volatility during 4Q20
- confidence that global economies will reopen in 2021 as vaccines are deployed meant that financial markets have increasingly priced in a cyclical recovery, reflected for instance in a steeper US yield curve
- Importantly, rates re-priced not through an increase in breakeven inflation, but rather higher nominal and, importantly for gold, real rates, effectively putting a stop to the bull market.
we are following dynamics in the US closely, hoping for more fiscal support as the government
- 1) rolls over Covid-19 relief measures
- and 2) gets to work on an infrastructure stimulus.
- At the same time, the Fed should strengthen guidance that nominal rates will remain capped as the economy reflates, thereby reducing the drag from real rates.