Impressive Bullish forecast10 Jun 2020 11:18
Governments around the world have announced an unprecedented level of monetary and fiscal stimulus to help get economies back on their feet after the lockdown. There is a good chance that this will eventually lead to in higher inflation, which could significantly enhance the value of gold and the mining stocks of companies that extract it. Analysts at Bank of America have forecast that gold prices will average $2,063 an ounce in 2021 and could hit a high of $3,000 within 18 months. The main reason for this is the action taken by the world’s central banks in response to the pandemic.
They say that the US Federal Reserve’s balance sheet as a percentage of GDP could rise by 20% to 40% this year. Interest rates in the US and most of the G10 economies will also probably be at or below zero for a long period of time as central banks attempt to push inflation back above target Ned Naylor-Leyland, manager of the Merian
Gold & Silver fund, has recently said that the operating environment for gold miners looks better than it has done in decades: He points out that the gold/oil ratio - the cost of an ounce of gold relative to a barrel of oil - recently hit the unprecedented level of 100:1 and this provides a massive boost to the profitability of energy-intensive gold miners. For decades, this ratio had hovered between 20 and 30:1.
When you factor in the depreciation of the currencies in which the companies’ costs are denominated relative to the US dollar (their sales currency), it should add a massive amount to the bottom line, assuming these trends don’t reverse in the near future.
In many cases margins have increased from less than $100/oz to more than $500/oz and this should come through in the earnings figures