Gold may be embarking on a a new bull run and has the scope to rise to $1,400 per ounce over the coming year, Allocated Bullion Solutions (ABS) said on Wednesday.
ABS expects market weakness to persist in the short term while investors reappraise the likely path of US monetary policy, supporting the dollar and leading to an unwinding of speculative net open positions, it said in a report on Wednesday.
“However, any dip sub-$1,150 is likely to be actively bought into and absent a sharp appreciation of the US dollar, we see scope for gold to rise to $1,400 over the coming year,” it said.
The spot gold price was recently quoted at $1,215.50/1,215.80 per ounc, up just 3o cents on Tuesday’s close.
Given the soft patch in the US in the year to date, ABS believes the uptrend in the dollar has been curbed and that it no longer represents the headwind for gold it once was, at least for now.
The Federal Reserve’s FOMC Minutes for April opened the door wider to a June rise in interest rates depending on incoming data, which pormoted the market to price in just over one rise for the remainder of this year and leading to a modest correction in precious metal markets, it noted.
ABS continues to expect two 25-basis-point rises this year in June and December while Fed members continue to weigh up softening global growth prospects against strengthening domestic indicators.
“Although we may see further retracement in gold should the Federal Reserve move more aggressively to market pricing, we believe fundamentals for gold will remain supportive on any downtrend,” ABS said.
ABS believes the price of gold bottomed out in December last year. “While there is risk of retracement – in the short term, we may see long positioning tested with a scope for a retest of $1,200 – we believe that the bigger picture suggests that we may be entering a new bull run and that the first year move may have only just started.”
Growth in global money supply driven by the US and China and expansionary policies adopted in a range of other countries provide a solid backdrop for gold, it said.
Finally, there is a high risk of a structural shift into physical gold in developed markets as well as a surge in physical demand in China, which could drive gold a lot higher, ABS also said.
“Such a move may potentially be even stronger and sharper than we currently expect,” it added.
(Editing by Mark Shaw)
The post Gold to reach $1,400/oz in 2016 – ABS appeared first on The Bullion Desk.
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Source: Bullion Desk News
