HSBC Ups Gold Forecast But Sees Potential Ceiling At $1,400/Oz
Tuesday July 05, 2016 10:57
(Kitco News) - HSBC has joined the chorus of banks hiking their gold forecasts lately, describing itself as “mildly bullish” but also suggesting prices may hit a ceiling if they rise to the $1,400-per-ounce area.
In a research note early Tuesday, HSBC upped its 2016 average price forecast to $1,275 an ounce from $1,205 previously and upped its 2017 forecast to $1,310 from $1,300.
Gold prices are up some 25% for the year so far, HSBC pointed out. Back in November – when other banks tended to be bearish -- HSBC listed three reasons to be bullish on gold: expectations of a stronger euro, its outlook for the Federal Reserve and a likely increase in demand from emerging-market buyers and investment demand from exchange-traded funds.
“We continue to expect some of these factors, notably continued accommodative Fed policies and investor demand, to support gold and add another reason for strength in the months ahead: increased demand for perceived ‘safe-haven’ assets following the U.K.’s vote to leave the EU (European Union),” HSBC said Tuesday. “This factor replaces previously strong EM demand, which has weakened in response to higher prices.”
After liquidations for the last three years, gold exchange-traded funds have been net buyers this year, adding 476 tonnes to holdings as of the HSBC report. Also, long positioning on Comex is at record highs, the bank pointed out.
Still, the bank said it looks for the rally to hit a ceiling around $1,400 an ounce.
“Jewelry is the single biggest demand source for gold,” HSBC said. “Demand for gold jewelry, especially in China and India, the biggest markets for bullion, is highly price sensitive. These buyers are now not as present in the market as they were six months ago.”
However, HSBC said, any dip in gold prices will likely bring this price-sensitive segment of the market back, so analysts also see support at $1,225 on any pullback.
For the remainder of 2016, HSBC listed a potential trading range of $1,200 to $1,400 an ounce.
“We anticipate further erosion in physical demand on price upswings to constrain rallies, but also expect increased consumer demand on downswings to help halt price declines,” the bank said.