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(Kitco News) - Gold is likely to surpass $2,000 an ounce in early 2013 and average $1,850 for the year, although with periods of volatility, said Global Hunters Securities in an outlook released Wednesday.

The firm looks for the metal to peak at close to $2,300 in 2014, although it also anticipates that the average for that year will fall back to $1,750.

GHS lists several factors supportive for gold.

“Gold prices have anticipated various monetary inflation waves since 2008, and we believe these monetary conditions will persist for quite some time,” the firm said. “Gold prices may also anticipate a future non-monetary inflationary phase in which consumer prices lift much higher than central-bank overnight rates, thus creating another favorable source of price support because of gold's attractiveness during times of higher inflation.”

Rising gold prices since 2003 have slowly eroded world gold-jewelry consumption, but central-bank demand has emerged as a source of support, GHS said. “Central banks globally seem to be taking advantage of gold's talent as a currency, something more difficult for household-sector jewelry consumers to utilize, in our view, thus reducing our concerns about jewelry demand's recent weakness.”

Global Hunter Securities said the downside risks to its price forecast come primarily from the equity markets and the strong inverse correlation between global stock prices and the U.S. dollar.

“Should stocks decline because of any combination of eurozone debt fears, Middle East conflicts, weak 2013 earnings expectations and/or fiscal cliff effects, then stock prices would likely decline and the dollar would probably strengthen, hurting gold prices,” GHS said. “If these effects were severe enough, then we believe that gold prices could decline by 20%. A price correction would not, in our view, change the longer-term direction of gold prices. We believe that the primary trend remains higher. A much stronger economic rebound toward 2014 could increase demand for equities and reduce demand for gold. Additionally, aggressive moves by Japan to weaken the yen could pressure the USD higher, thus hurting gold prices.”

GHS said the U.S. Federal Reserve, through its monetary-policy actions in recent years, has essentially become “gold’s best friend.” Short-term interest rates are near zero and the Fed has undertaken three rounds of bond-buying programs, intended to push down long-term rates and known as quantitative easing. Central banks in other key nations have also been expanding their monetary bases.

Against this backdrop, the dollar remains the dominant currency for international settlements and valuations. However, the greenback also is “increasingly perceived as something which loses value over time, especially since 2003,” GHS said. “The situation has encouraged an increased interest in gold as a hedge against the weakening USD.” GHS later adds that gold “appears to be in greater demand than many other currencies.”

Meanwhile, GHS suggested Fed efforts to avoid deflation could become even more supportive for gold whenever these policies are pulled back and an outbreak of inflation occurs.

“If monetary inflation has successfully suppressed deflation since 2008 – as Fed Chairman (Ben) Bernanke would want it – then the risk of inflation in the aftermath of these policies could offer gold prices potentially another leg up in the years to come thanks to gold's ageless strength in the context of higher inflation,” GHS said.

By Allen Sykora of Kitco News; asykora@kitco.com

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