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Commerzbank downgrades gold forecast, but prices can still push above $2,000

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(Kitco News) - The gold market is starting to attract some new buying momentum as prices push above $1,800 an ounce at the start of the week. Still, the recent drop to a seven-month low has taken its toll as some banks continue to adjust their 2021 price forecasts.

Commerzbank is the latest to highlight the precious metals growing struggles as investors continue to focus on record valuation in equity markets.

"As long as there is no change in the current environment, gold will find it difficult to withstand the headwinds and will remain under pressure. We do not rule out that gold will fall further in the short term, even if we do not expect a price collapse," said Daniel Briesemann, precious metals analyst at the German bank, in a report Friday.

"The environment for gold is likely to remain difficult until the middle of the year, so we see little recovery potential for the time being," he added.

The bank updated its gold-price forecast in the report as it now sees the yellow metal ending the fourth quarter around $2,000 an ounce, down from its previous forecasted target of $2,300 an ounce.

Briesemann said that rising bond yields remain the gold markets biggest hurdle. 10-year U.S. bond yields are currently trading near their highest level in a year, above 1.3%. Bond yields are well off their lows of 0.5%, seen only six months ago.

"This makes gold less attractive as an interest-free investment," he said. "In addition, the U.S. dollar has apparently stopped its downward trend and appreciated somewhat since the beginning of the year. It has thus changed from a support factor to a factor weighing on the price."

Although the bank sees growing headwinds for gold prices, Briesemann said that they are not completely giving up their bullish stance. He added that there is still strong long-term fundamental support for gold and that prices below $1,800 continue to attract bargain hunters.

Briesemann described the current price action in the gold market as the start of an oncoming tsunami. Waters will recede before the massive wave hits.

Briesemann, said that the bank remains optimistic on gold in the long-term as the world continues to deal with record amounts of debt. He added that it would take years for central banks to normalize monetary policy.

"A significant reduction of these is not only a Herculean task but could occupy generations. This is one reason why central banks are continuing their ultra-loose monetary policy - there is no end in sight here," he said.

Although investment demand is expected to be lower compared to the historic flows seen in 2020, Briesemann said that it will still be strong enough to push prices back to $2,000 an ounce.

"While we do not rule out the possibility of gold falling further in the short term, we are convinced of significantly higher prices in the long term," he said.

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