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How far can gold go? $3000 an ounce?

14 Jul 2020 01:23 PM


What can we expect later in the year?

Analysts at Bank of America, for one, are optimistic on the outlook for the yellow metal, raising their 18-month price target to $3,000 an ounce, more than half as much again as the nine-year old record of around $1,921.

Why such confidence?

With the increase on demand for gold mutual funds and the prospect of seemingly endless monetary expansion from central banks, they see a bullish future for gold as demand is only likely to continue during the crisis.

As the saying goes, the Fed can’t print gold.

CME responds to gold market logistical developments

Another reason to think gold’s bullish run is likely to continue is the new gold futures contract launched recently by CME group.

While the promise of unlimited stimulus by the Fed send it soaring in March, London’s gold spot market has lagged behind the prices on the Comex futures exchange in New York.

Spot gold prices fell far below U.S. gold futures, as air travel restrictions and refinery closures hampered shipments of gold to the US to meet contractual requirements. Both gold spot and future prices normally trade within a few dollars of one another, but at one stage on the difference was more than $70.

This has forced the London Bullion Market Association and several major banks that trade gold to ask CME Group to allow gold bars in London to be used to settle its contracts to ease disruption to trading.

London is a key gold storage center that uses 400-ounce bars which must be melted down and recast as 100-ounce bars to be accepted by Comex in New York. This contract will enable delivery in New York of kilogram, 100-oz and 400-oz bars for maximum flexibility.

CME has announced that the contract will also be available for inter-commodity spread trading against the GC benchmark gold futures contract, giving existing future (GC) traders efficient access to this new market - and hence creating yet more demand on gold.

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