Bank of America analysts predict that the price of gold may soar, reaching $3,000 per ounce in the next 12 to 18 months. Product structure, $10-30 billion products respectively have operating income of $40.1/$128.8/$0.6 billion.

Bank of America's analysts considered various factors, including mine output, recycled gold, and jewelry demand. Michael Widmer, commodity strategist of Bank of America, wrote in a report to clients that investment demand, geopolitical tensions, rate cuts, and central bank purchases of gold may boost gold prices.

The key is the Fed's rate cut.

As of the time of writing on Tuesday, Comex gold futures hovered around $2,330 per ounce. This means that there is still more than 28% upside potential if gold prices were to rise to Bank of America's target price of $3,000.

However, Bank of America analysts admit that the current market liquidity does not necessarily support this price point. They explained that increasing non-commercial demand will be necessary for gold prices to reach $3,000.

They believe that the Fed's rate cut may trigger this situation. The Fed's rate cut will lead to funds flowing into physical gold-backed ETFs and increase gold trading volume.

Central bank purchases are also important.

Bank of America stated, "Central bank purchases of gold are also important. As the proportion of the US dollar in central bank foreign exchange portfolios decreases, more central banks may be more active in buying gold."

Last year, central banks around the world increased their gold holdings by 1,037 tons, the second highest year on record after 1,082 tons in 2022.

Bank of America emphasized a recent survey by the World Gold Council, which showed that central banks in various countries are interested in buying more gold, consistent with rising concerns about the fragility of the US Treasury market, which may prompt central banks and private investors to further diversify investment in gold.

They point out that in 2023, private hoarding of gold bars and central bank purchases of gold account for 49% and 43% of gold purchases, respectively.

Analysts wrote, "Although the motives for central banks to hold gold may be different, many reserve investment portfolios have one thing in common: the share of US dollars held has been decreasing, while the amount of gold held has been increasing."

Bank of America analysts also believe that gold prices will continue to rise even if investor dissatisfaction with the US Treasury market intensifies and pushes yields higher.

Normally, US Treasury yields and gold prices have a negative correlation. Therefore, Bank of America believes that a sharp increase in US Treasury yields may initially push down gold prices, but in the process of seeking stability, funds may flow back to the gold market.

Although the collapse of the US Treasury market is not Bank of America's basic prediction, they admit that it is a potential risk. Their conclusion is: "In this case, gold prices may initially fall due to large-scale liquidation, but they should then rise."

Analysts wrote, "The long-term inverse relationship between gold and bond yields has become more fragile, and in our opinion, this situation is unlikely to change in the future."

Edited by Jeffrey