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ASX gold shares could surge much higher on predictions that gold will hit US$3,000

Gold bars and stock market

If you thought you’ve missed the gold bull run – think again!

The price of the precious metal is forecast to hit a record US$3,000 an ounce over the next 18-months by Bank of America Corp, reported Bloomberg.

That is a whopping 50% higher than the investment bank’s previous forecast of US2,000 an ounce, although this would still represent an all time high for the commodity.

Gold peaked at US$1,921 in September 2011 and is not far off this record currently at US$1,686 per ounce. The safe haven asset rallied 31% over the past year and is one of the reasons why some ASX gold stocks have outperformed.

Good as gold

The Evolution Mining Ltd (ASX: EVN) share price and Northern Star Resources Ltd (ASX: NST) share price have surged over 50% in the past 12 months.

While our biggest gold producer Newcrest Mining Limited (NCM) didn’t do as well given its circa 10% increase over the period, that’s still an impressive 25% gain over the S&P/ASX 200 Index (Index:^AXJO).

ASX gold shares are cum-upgrade

If BofA’s gold forecast comes to pass, there is significant upside for ASX gold stocks as consensus estimates are no where near US$3,000 by end of 2021.

This means ASX gold producers are in a cum-upgrade cycle!

But again, this assumes that gold is heading much higher. While I can’t say gold is heading up to the “3” handle in a relatively short period, I believe gold will easily break through its last record high. I’ve outlined the reasons last week.

Gold bugs can thank central banks

The experts at BofA are gold bulls because “The Fed can’t print gold”, which is incidentally the title of their report.

The US Federal Reserve, or Fed, is joined by the Reserve Bank of Australia (RBA) in unleashing an unprecedented quantitative easing (QE) program.

QE is essentially printing money to buy assets to ensure there is plenty of cash in the financial system during the COVID-19 pandemic panic.

Gold’s second renaissance

The thinking is that cheap and readily available money will stimulate the sputtering economy and save us from a deep depression.

That’s the theory. In reality, as we’ve found out during the GFC when QE was last in vogue, financial markets get an immediate sugar hit but it takes a much longer time for the real economy to enjoy any of the treats.

What happens in the meantime is that the country undertaking QE will see their currency come under significant pressure.

Steady climb to the top

This loss in confidence in the future value of fiat currencies, such as the greenback, will drive investors into gold.

BofA is forecasting gold to average US$1,695 an ounce this year and US$2,063 in 2021. Mind you, this is an average price forecast, which means you can expect the gold price to steadily climb towards the US$3,000 mark as we head into 2022 – assuming BofA’s crystal ball works.

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Motley Fool contributor Brendon Lau owns shares of Evolution Mining Ltd. Follow him on Twitter @brenlau.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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