Gold Will Shine Due to Inflationary Risks of COVID-19 Stimulus Packages, Says CIBC

Francisco Memoria

Analysts at the Canadian Imperial Bank of Commerce (CIBC), one of the “Big Five” banks in the country, have argued gold will shine during inflation storm that is currently brewing.

The analysts, according to Kitco, noted with current interest rates the price of gold has been rising, and could keep on doing sop as the impact of central bank monetary policy on financial markets must not be underestimated.

 The analysts added that they have never “seen governments and central banks as involved in the global economy as they are today,” adding:

While that is clearly needed given the state sanctioned 'stay-at-home’ directives to deal with the health risks associated with the COVID-19 virus, the disruption arising from public sector involvement and ultimate exit from the corporate world will likely be messy.

According to the analysts, the COVID-19 pandemic is going to affect global supply chains and end up leading to growing inflation rates, which will be a positive factor for the precious metal. They added that central banks will react to the inflationary scenario slowly while accepting “an early boost in inflation.”

The reaction will be to set higher interest rates, they said. The CIBC analysts further claimed the coronavirus pandemic will lead to a small global supply chain, which could lead to higher prices as companies develop domestic production and source materials closer to them.

The CBIC analysts concluded arguing that given the amount of unknown factors surrounding government interventions and the coronavirus’ effects, it “makes sense to hold gold.” They concluded:

Against this environment, it is certainly possible that everything works out. We find it hard to be clear on much, except the belief there will be more debt, more volatility and a solid environment for gold and other risk-averse assets.

While the CIBC’s analysts didn’t risk a price target, as CryptoGlobe reported Canadian investment bank and financial services provider TD Securities recently revealed it expects the price of gold to reach $1,900 an ounce within the next three months.

Bank of America (BofA) revealed in a report titled “The Fed Can’t Print Gold,” it was setting its 18-month price target for the precious metal to $3,000 an ounce.

Featured Image Credit: Photo via Pixabay.com