According to the Bank of America Merrill Lynch, gold is set to take a run over the next year due to the constant cloud of uncertainty with regards to the U.S budget deficit alongside concerns over trade wars.
The head of global commodities and derivatives research, Francisco Blanch has stated that gold could average $1,350 an ounce of 2019 due to the U.S fiscal balance.
“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 a 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 tax changes are lowering the revenue base, said Blanch.
“That means the Treasury has to borrow more so that puts pressure on rates, which in the short run has not been good for gold,” he said from Hong Kong.
“However, in the long run, it basically begs the question, can this go on for much longer? Can the U.S. borrow its way out of the next downturn and at what cost?”
“Eventually the trade wars are going to come back to bite the U.S.,” said Blanch.
“It could take longer, it could take shorter, eventually it’s going to happen, but maybe the Fed acknowledges it sooner, which is what people are going to be looking for in terms of getting more bullish on gold. We know that trade wars are not good for the economy.”
One of the world’s most successful hedge fund managers Ray Dalio has also gone on record to express his concern over the budget. Mr. Dalio has predicted that the US economy is nearly 2 years away from a downturn, which will result in the dollar plunging as the government prints money to fund the growing deficit.
Want to know why the USA will eventually be stripped as the reserve currency of the world?— Gold Telegraph (@GoldTelegraph_) August 26, 2018
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Goldman Sachs has also expressed their concern and has recently turned bullish on gold as they have forecasted a price target of $1,325 in 12 months.
With the US budget deficit set to swell to roughly $1 trillion by fiscal 2019, it’s worth noting that the interest owed by the government is set to exponentially increase as it set to triple over the next 10 years according to the Congressional Budget Office.
Whatever the case is, it’s only a matter of time before the short term trick of printing money doesn’t come back to haunt the United States economy.