A recent report highlighted beliefs by Bank of America Merrill Lynch that gold is on the precipice of a significant surge over the coming months and year, thanks in part to increasing budget deficits, tariffs and trade wars between the United States and other global economies.
Representatives from the bank say gold might reach an average of $1,350 per ounce in 2019, as the United States economy weakens because of tax overhauls. Francisco Blanch, who serves as the Head of Global Commodities and Derivatives Research for Bank of America, said, “In the short run, the effects of strong dollar, higher rates dominate. But in the long run, a huge U.S. government budget deficit is pretty positive for gold.”
What to expect
The notice put out by Bank of America regarding the potential surge in gold value is not the only report issued recently with similar findings. Several weeks ago, Ray Dalio, who is a billionaire hedge fund manager, projected gold to see a significant surge in value as well, but went even farther with his negativity about the U.S. economy.
Dalio’s opinion is that not only will what’s been a bullish economy shift in 2019, but it will also be the beginning of a longer overall economic downturn, which will see a sharp decrease in the value of the American dollar, as the government prints more money in hopes of funding a massive (and constantly growing) national deficit.
According to the nonpartisan Congressional Budget Office, the Tax Cuts and Jobs Act passed in 2017, as well as new federal spending by the current administration, will result in the budget deficit growing to $1 trillion by 2020. These factors have led to the U.S. Treasury being forced to elevate sales of bonds and notes to levels they have not been at since the immediate aftermath of the recession that began in 2008.
So what do we expect out of the economy and gold moving forward?
The rate increase in September resulted in the Federal Reserve being the primary driver of gold’s value trajectory in the coming year. However, as the budget deficit continues to grow, and as economic growth slows down and trade wars with China heat up, the Fed might be forced to shift its stances in a way that will slow down planned rate increases.
Individual Americans will likely be forced to cut back on spending, which could result in a greater recession than economic experts and the Federal Reserve could have accounted for. This is all going to be a result of these trade wars and new financial policies that the economy simply cannot withstand.
With the current political environment, there doesn’t seem to be any short-term solution to resolve the escalating trade wars. This means investors need to start looking more long-term to protect their wealth.
For more information about gold coin investing and its benefits, we encourage you to contact Gold Wealth Financial with your questions. We look forward to helping you get the most out of your investments!
- by Steve Hunt
Categorised in: Gold Investing