Gold's role as a safe haven asset, particularly in times of fiscal stress, has become even more appealing an increasingly uncertain economic landscape.
Bank of America analysts reaffirmed their bullish stance on gold, projecting a target price of $3,000 per ounce, citing mounting concerns over global debt sustainability and rising fiscal profligacy.
In their latest Global Metals Weekly report, the bank highlighted that despite rising interest rates, which traditionally exert downward pressure on gold, the metal remains attractive as investors seek refuge from fiscal uncertainty.
The US national debt is expected to reach record levels within the next three years, driven by increased government spending on climate change, defense, and aging demographics.
"Neither Kamala Harris nor Donald Trump seem to prioritise fiscal consolidation, but the US is not alone," analysts wrote. "An analysis of policy platforms in advanced economies suggests policymakers strongly favour fiscal expansion."
According to Bank of America, this may increase pressure on the Treasury market and make gold the "last safe haven" asset, prompting both traders and central banks to boost their gold holdings.
The analysts noted that global spending commitments could rise to 7-8% of GDP annually by 2030, intensifying concerns about debt sustainability and market volatility.
"If markets become reluctant to absorb all the debt and volatility increases, gold may become the asset of choice," analysts wrote.
Despite some near-term risks, Bank of America sees gold prices supported at $2,000 per ounce, with potential for further gains as central banks diversify their reserves.