Bank of America strategists have pointed to a growing interest in gold as a safe-haven asset amid rising risks in other traditional options, according to a recent article by Jordan Finneseth for Kitco News. After years of low interest from both retail and institutional investors, gold has recently been setting new record highs. Analysts at the bank suggest that investors, including central banks, are now rotating into gold as a way to protect wealth from inflation and debt debasement due to continuous government borrowing and fiat currency printing.
The strategists argue that as U.S. debt continues to rise, the Treasury supply is at risk. Higher interest payments as a percentage of GDP are likely to make gold an attractive asset in the coming years. The analysts also referred to a recent International Monetary Fund (IMF) report, which projects that new spending could reach 7% to 8% of global GDP annually by 2030, further driving demand for gold as a protective asset.
The analysts criticized U.S. presidential candidates Donald Trump and Kamala Harris for not prioritizing fiscal discipline. They noted that both candidates’ tax and spending plans could lead to record levels of national debt within the next few years. Trump’s plan is expected to add $7.5 trillion to the national debt by 2035, while Harris’s plan could increase it by $3.5 trillion. These debt increases, they argue, would boost interest in gold, with the strategists reaffirming their target of $3,000 per ounce, up from its current price of $2,715.
Gold’s recent rally has been fueled by the Federal Reserve’s easing cycle, which began with a 50-basis point interest rate cut. Since the rate cut, gold has risen by 4.3%, driven by inflation concerns and a weaker Treasury market. The analysts also noted that despite a recent increase in real rates, gold has maintained its upward momentum, suggesting that lower rates are supportive of gold’s price, while higher rates do not necessarily lead to bearish trends.
The report further emphasized that Western investors have returned to the gold market following the Fed’s decision to initiate rate cuts. Central banks have apparently been aggressively buying gold, with the yellow metal now making up 10% of their reserves, compared to just 3% a decade ago. The analysts added that despite some expectations of a near-term price correction for gold, its long-term potential remains strong.
On Friday, the price of gold set a new all-time high, ending the day at $2,721.80 per ounce.
Source: TradingView
JPMorgan analysts have adopted a more optimistic view of digital assets for 2025, according to a report led by managing director Nikolaos Panigirtzoglou. Their insights were shared in the firm’s “Alternative Investments Outlook and Strategy” report, released on October 11, as referenced in an article by Yogita Khatri for The Block, published on October 15.
The analysts emphasized the growing relevance of the “debasement trade,” where investors seek alternatives like gold and Bitcoin to hedge against economic uncertainty. The debasement trade reflects concerns such as rising global political instability, persistent inflation worries, and the increasing risks associated with government debt levels. Panigirtzoglou also highlighted a loss of confidence in fiat currencies, particularly in emerging markets, as another driver behind this demand. Although these issues have been ongoing, the current price levels of gold, nearing $2,700 per ounce, and Bitcoin, around $67,000, have given the debasement narrative renewed importance.
The upcoming 2024 U.S. presidential election could further strengthen this trend, especially if Donald Trump wins. His policies, including tariffs and expansionary fiscal measures, are expected to fuel demand for safe-haven assets. However, the report notes that markets assign a low probability to a Trump victory, aside from Bitcoin and gold markets.
Additional reasons for JPMorgan’s bullish outlook include announcements from traditional wealth managers like Morgan Stanley, who are recommending spot Bitcoin ETFs to clients. The report also highlighted that liquidations from the Mt. Gox and Genesis bankruptcies, as well as the German government’s Bitcoin sale, are mostly completed, easing market pressure. Expected cash distributions from the FTX bankruptcy, likely in late 2024 or early 2025, could result in reinvestment into cryptocurrencies.
Regarding stablecoins, the report mentioned their resilience, with market caps nearing previous highs of $180 billion. However, regulatory clarity is not expected until 2025. The report suggests that U.S.-compliant stablecoins may benefit from upcoming regulations, while non-compliant stablecoins, like Tether (USDT), could face challenges.
Finally, the analysts pointed out Bitcoin’s current price of $67,000, well above JPMorgan’s estimated production cost of $47,000. They also compared Bitcoin’s volatility-adjusted value to gold, with an implied price of $63,000, slightly below its current level.
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