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These 4 Banks Are Bumping Their Gold Forecasts

(Kitco News) - Sentiment in the gold market is growing by leaps and bounds, with international banks increasing their forecasts Wednesday as prices rose to a new two-year high overnight.

Overnight, August Comex gold futures rallied to a session high of $1,377.50 an ounce, their highest level since mid-March 2014. The market has managed to hold on to most of those gains as prices last traded at $1,369.70 an ounce up almost 1% on the day.Gold Bar

Gold has seen a significant surge after Britain voted to leave the European Union, causing major global market turmoil. Following the latest push, at least four banks have come out Wednesday increasing their forecasts, as they see more potential for the yellow metal.

Along with growing market uncertainty in the wake of the Brexit referendum, another common theme among the bullish banks is the fact that global bond yields continue to push to record lows.

UBS has increased its short-term target to $1,400 an ounce. For this year, the Swiss bank has increased its yearly average to $1,280 an ounce, up from $1,225; for the second half of the year, gold analyst Joni Teves said in her note that she expects prices to average $1,340 an ounce.

“We expect the next leg to be driven by an extension of the trend of strategic portfolio allocation into gold from a diverse set of investors. This trend should now deepen, attracting more participants and encouraging those who have been hesitating to get more involved. Relatively orderly retracements, which have typically been shallow and brief, indicate strong buying interest,” she said in her report.

Commodity analysts at Commerzbank do not see gold’s safe-haven appeal coming to end anytime soon as they increase their year-end forecast by $100 to $1,350 an ounce. The bank also sees more potential for gold as analysts expect the Federal Reserve will not be in a hurry to raise interest rates in these current market conditions.

“Clearly markets will continue to be preoccupied by Brexit for some time to come, which means that uncertainty among market participants should remain high. The U.S. Federal Reserve is likely to take its time before implementing any further rate hikes,” the analysts said.

Georgette Boele, coordinator of foreign exchange and precious metals strategy at ABN AMRO, noted in a report that gold has already hit the bank’s September target of $1,350, but analysts see momentum continuing to push prices higher at least in the third quarter of the year. The Dutch bank now sees prices ending September at $1,425 an ounce

Boele noted that there is a risk that gold could see a correction, similar to what happened in May when prices corrected 6%, as the market does appear over-extended.

“But this is not our base case,” she said. “For a start, we don’t expect a strong rally of the U.S. dollar (only versus sterling) and this will help gold and silver prices as they are proxy currencies. Moreover, demand for safe-haven assets will likely be alive in the short-term.”

The most bullish outlook is reserved for French bank Natixis; in a report Tuesday, Bernard Dahdah said that he is expecting prices to hit $1,450 an ounce within the next two months.

“Gold is a very good hedge against a local currency debasement. In these uncertain times, it would be prudent especially for GBP and EUR currency holders to own gold. As gold is traded in USD, the effect will be amplified if the local currency depreciates,” he said.

However, not all banks are bullish on gold. In an interview on CNBC John LaForge, head of real asset strategy at Wells Fargo, said that he sees this gold rally as simply a correction in a long-term downtrend.

"We'd been down for four years straight, so we needed a bounce," he said Tuesday in the interview "But the reality is that gold is a commodity, and commodities have entered a long bear market."

LaForge added that gold could retest the December 2015 lows at $1,050 an ounce.

By Neils Christensen of Kitco News; nchristensen@kitco.com

 

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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