The bank made a forecast for the price of gold at year-end and estimated that it will be increase as much as 10 percent higher than current levels. The bank set out five reasons in a report on Friday for the experts to believe gold prices could recover to $1,200 per ounce at the year-end.
1. Fed tightening is already priced into gold
"With a shift in the Federal Reserve's policy having been anticipated in the financial markets since as early as 2013, some of the declines based on a rate rise have already occurred." Thus, the reaction of the gold may not be negative one in any case.
2. Actual Fed hikes could see gold prices rise
"This pattern has important ramifications for gold. History shows that gold prices…generally rise, though sometimes with a lag, after the first rate hike."
3. There's scope for a short-covering rally
Short positions on the Comex touched the peak on July 7 while long positions are at their highest since December 2009.
4. Low prices will, ultimately, spur demand
"In important gold consuming nations, such as China, India, Indonesia, and Vietnam, as well as other EMs, consumers may have fewer tools at their disposal with which to protect savings and household wealth against rising prices or low or negative real interest rates."
5. Central bank buying will remain supportive
"The PBoC is an important central bank with significant influence. The mere fact that they have accumulated gold may lead other EM central banks to examine purchasing bullion. Also many central banks hold quite low levels of gold reserves in relation to their forex holdings, leaving room for further accumulation."
Credit: mql5.com
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