Gold prices are on the cusp of a major and sustainable rally as the U.S. debt crisis, which saw the government’s credit rating downgraded by two of the big three credit reference agencies earlier this summer, continues to deepen.
BCA Research says that is expects the precious metal to begin a major move to the upside as debt levels engulf the US dollar. The research firm’s commodity analysts predict that debt to GDP levels will hit 110% by 2030, leading to Treasuries and the dollar to fall out of favour. When this happens, expect gold prices to be stratospheric.
“Gold’s appeal as a safe haven and store of value will become apparent as fiscal dominance overtakes monetary dominance at the Fed,” the analysts explain. “An emergence of fiscal dominance also would redound to the detriment of the USD, and governments’ and investors’ willingness to hold it. This risk of USD debasement also will support gold demand.
“If government debt continues to increase in perpetuity, bond markets will eventually see the risk in continuing to lend to the government – i.e., purchasing treasury securities – and will thus demand higher yields. Once yields become too expensive for the government, it will need to assert fiscal dominance and lean on the Fed to conduct more fiscally favourable monetary policy, irrespective of the economic fallout. Fiscal dominance takes over at this point, and inflation starts to move higher.”
BCA says that it expects gold prices to continue moving higher this year, with it targeting at least £1,588 ($2,000) by December.
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