Gold is set to surge over the next year as concerns deepen about the widening U.S. budget deficit and a tariff-driven trade war starts to damage the country’s economy, according to Bank of America Merrill Lynch.
Bullion could average $1,350 an ounce in 2019 as corporate tax reforms worsen the U.S. fiscal balance, Francisco Blanch, head of global commodities and derivatives research, said in a phone interview last week. Spot gold traded at $1,198.82 on Monday and has averaged about $1,285 this year.
“We’re still pretty constructive longer term on gold,” because of worries over the future of the U.S. economy even though it’s performing relatively well right now, said New York-based Blanch. “In the short run, the effects of strong dollar, higher rates dominate. But in the long run, a huge U.S. government budget deficit is pretty positive for gold,” he said.
The warning over the budget echoes billionaire hedge fund manager Ray Dalio, who predicted this month that the U.S. economy is about two years from a downturn, which will see the dollar plunge as the government prints money to fund a swelling deficit. Goldman Sachs Group Inc. has also joined the chorus of bulls, seeing gold at $1,325 in 12 months. Bullion has been building a base around $1,200, after five months of losses, the worst run since 2013.
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