The collapse of the US WTI oil below zero USD urged investors to rush to safe-haven assets. This allowed gold to quickly restore ground, and traders were able to form long positions at the level of $1,665 per ounce. Commodity market remains highly volatile while US Treasuries keep holding at historically low levels. It seems that the US dollar is not going to surge even amid the drop of S&P 500. These conditions are perfect for the precious metal which is aiming at the target of $1,800. However, according to several major banks, the bulls are not going to stop here.
BofA Merrill Lynch raised its 18-month outlook for gold from $2,000 to $3,000 an ounce. The estimates are 50% higher than the previous record reached in 2011. The Bank expects the gold to trade on average at $1,695 in 2020 and at $2,063 in 2010. The manufacturing activity is contracting worldwide, expenses are growing, and central banks' balance sheet may soon double. Under such conditions, the major world currencies will weaken whereas the XAU/USD quotes will rise.
ETF supporters also believe in this scenario. The stocks of specialized exchange-traded funds have grown by 14% since the beginning of the year and reached their highest level since April 2019. They continue to increase over the past 21 days. The monthly fund flow to the ETF SPDR Gold Shares was the largest since 2016.
Fund Flow at SPDR Gold Shares
When the global economy entered the time when debts can be cashed in, world's central banks thought they could fully control this process. However, the history proved that is not always the case and the best way to stay on the safe side is to invest in gold. The XAU/USD quotes are appreciating now when the US dollar is stable. But what will happen when the US currency begins to weaken? Exactly! The precious metal will surge rapidly to its highest levels.
Indeed, when the Fed buys $41 billion of debt every day, there is no reason to expect a slowdown in its balance sheet. It took some time for the Central Bank to return to more or less normal levels after the previous crisis. It took several years, actually. Now the process will go even slower, the balance may increase up to $9-12 trillion. So the gold is very likely to renew its historical high last seen in 2011.
According to the Committee on Responsible Federal Budget, the US public debt in 2023 will reach 107% of GDP, which is higher than in the period after the Second World War. The budget deficit will expand to almost $4 trillion. The deteriorating financial situation in the country will slow the process of economic recovery which is bad news for the US dollar.
Technically, a return of gold above the pivot levels of $1,700 and $1,725 per ounce will increase the risks of an uptrend. Then we can talk about the targets of 161.8% according to patterns AB = CD which correspond to the marks of $1,805 and $1,860. I would recommend holding the long positions formed on the rebound from the support level at $1,66 and increasing them on the rollbacks.
Gold, daily chart
