For Bank of America analysts, fiscal challenges and global economic trends have made gold an even more alluring safe haven than bonds.
While falling real interest rates usually help gold, the bank says that even higher rates might fail to put downward pressure on the yellow metal’s price. this reflects changes in the metal’s behavior regarding macroeconomic variables.
Although Bitcoin and other cryptocurrencies were not mentioned, BoFA seems to be pretty crypto-friendly. Since February, Bank of America’s Merrill Lynch and Wells Fargo have been offering spot Bitcoin exchange-traded funds to eligible wealth management clients, highlighting the growing popularity of the asset class.
Bank of America: Gold Outshines Bonds as Safe Haven
Bank of America strategists, who have long been strong proponents of gold’s benefits, particularly at a time of rising inflation, said its relative attractiveness against traditional havens of safety, such as government bonds, is improving as risks accumulate. However, even though it embraced blockchain, it is still very cautious about Bitcoin and crypto.
The bank added that, logically speaking, investors, including central banks, should shift toward the yellow metal. They see it as a hedge against inflation and currency devaluation because of growing government debt. More surprisingly, US PPI Inflation, up to 1.8% from the expected 1.6%, has rejuvenated fears of a possible slump in Bitcoin. This rise in the PPI indicates that inflationary pressures are firmer in the economy. This might result in the Federal Reserve keeping a more hawkish interest rate posture.
This shift is because of fiscal concerns and economic uncertainty. Therefore, it makes gold a better choice amid growing financial pressures and worldwide macroeconomic challenges.
On the other hand, some experts, like BitMex co-founder Arthur Hayes, think that war, especially in the Middle East, has a sobering impact on the US’s rush to increase government spending. This means more money printing and inflation. In his opinion, this will boost the Bitcoin price.
One fundamental driver is growing fiscal stress, which is there because of the US national debt, that could balloon to record highs. The cost of servicing this debt is also likely to rise as a percentage of GDP in the next few years.
This fiscal outlook brightens the appeal of gold, thereby establishing the reason behind Bank of America continuing target of $3,000 per ounce. Fiscal expansion seems to be supported by both main US presidential candidates, Kamala Harris, and Donald Trump. The likelihood of higher spending in the future is, therefore, increased.
Gold to Hit $2,000 Despite Short-Term Headwinds
BoFA remarked that pledges on climate, defense and demographic policies, could increase spending by 7-8% of GDP annually by 2030. As the market deals with more debt, increased volatility could send more investors into gold.
Central banks also continue to diversify their reserves. They have risen from 3% to 10% of total reserves over the past ten years. Demand from Western investors has picked up in recent months, even while China’s imports of gold dipped.
Bank of America still thinks the longer-term outlook for gold is bullish. However, it says the short-term gains could be limited. The caution lies in a “no-landing” scenario in the US economy. Thgoldere growth is ongoing without a slowdown, together with rate cuts by the Federal Reserve. The latter, however, was recently clouded by jobless claims and retail sales.
Still, BofA insists that even with relinquishing some recent gains, gold will likely find support around the $2,000 per ounce level.
BoFA Embraces Blockchain, But Still Cautious on Bitcoin
While traditionally skeptical of virtual currency, including Bitcoin, Bank of America is changing its outlook on the asset as it increasingly becomes recognized as a hedge against inflation and economic uncertainty, joining the ranks alongside gold. Indeed, a growing perception of Bitcoin as a “digital haven” may be due to rising government debt, currency debasement, and inflationary pressures. Contrasted with more traditional assets, Bitcoin’s decentralized nature and capped supply make it an attractive alternative for investors looking to hedge against economic turmoil.
Bank of America has warmed up to blockchain by testing blockchain-based platforms, including the Paxos Settlement Service, to help facilitate traders. Though skeptical about Bitcoin, the institution has moved to file patents related to cryptocurrency- a zeitgeist of wanting to stay caught up on potential game-changing ideas.
The rise of Bitcoin as a workable alternative to conventional safe-haven assets tests the hypothesis that financial heavyweights such as Bank of America will eventually join the fray by including digital assets in their official economic reports and investment strategies. For now, crypto integration into mainstream finance is one to watch.
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