Bank of America Corp (BAC): Why Gold Could Hit $2,000 Next Year

Central-bank buying forecast to rise
Bank of America expects central banks across the globe — especially in developing markets — to engage in more proactive exchange-rate management as the year progresses in response to aggressive Japanese tactics to devalue the yen.

As global growth and inflation pick up, increased U.S. dollar purchases from central banks will be needed to counter the appreciation of non-yen exchange rates, Bank of America Corp (NYSE:BAC) argues. This should in turn drive up inflation, particularly in emerging regions, boosting gold interest as initial dollar purchases are eventually recycled into metal holdings.

Central banks have remained steady purchasers of gold in recent years amid fears over macroeconomic fragility and rising inflation. South Korea has bought an additional 20 tonnes of metal in recent days, taking its total holding to 104.4 tonnes. Russia and Kazakhstan bought more last month.

Official sector purchases across the globe hit 534.6 tonnes last year, according to the World Gold Council, the highest level since 1964 and up 17% from 2011.

Other factors could also drive the precious-metal price higher in the medium term, Bank of America Corp (NYSE:BAC) says. It expects real rates to head lower again moving into 2014, prompting fresh gold interest. The institution anticipates rising affluence levels in emerging markets to drive gold jewelery purchases higher, too.

The article Why Gold Could Hit $2,000 Next Year originally appeared on Fool.com and is written by Royston Wild.

Fool contributor Royston Wild has no position in any stocks mentioned. The Motley Fool owns shares of Bank of America.

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