Gold price to end year at $1,250-1,300/oz – ETF Securities

Otmane El Rhazi from The Bullion Desk.

The gold price will end 2015 in a range of $1,250-1,300 per ounce as long as any US interest rate rises are modest, ETF Securities said.

Higher rates look highly likely after the end of quantitative easing (QE) in the US and the reinvigoration of the economy. Rates have has been near-zero since December 2008.

The outlook for gold is especially uncertain, ETF Securities said in a note on Monday.

“Ordinarily, a positive economic environment, in which some major central banks will likely raise interest rates, will be a gold negative scenario. However, there are a number of events which could drive a surprise increase in the price,” it added.

Spot gold was last around $1,172 per ounce, down from a 2014 peak of $1,388.70 in March but up from a low of $1,131.60 in November.

Central bank issues, which have affected prices this year, will play a part in the gold price for 2015, with banks being forced into stimulus measures to counteract slowing economic activity.

“The expansionary monetary policy of the ECB and BOJ [will] also prompt demand for gold from investors in these regions as low or negative deposit rates increase the appeal of holding gold,” ETFS said.

The Bank of Japan, following the end of QE3 in October, increased its stimulus package to 80 trillion yen per year, while the European Central Bank continues to pursue its ABS and TLTRO programmes, although pressure is mounting on the bank to follow in Japan’s footsteps.

“The accompanying weakening of the euro and yen will also boost returns of foreign investors holding dollar denominated assets,” ETFS said.

Though the strength of the dollar, which is just up from two-year highs against the euro at 1.2462, will be less of an issue for gold in 2015, ETF Securities added, believing that the relationship will decouple in 2015 as the global economic recovery gains pace.

“Dollar strength in 2014 has been the result of the brightening US economic environment and the increasing potential for the Fed to tighten policy in 2015,” it said. “We expect this ‘positive’ US dollar strength to continue but the improving economic backdrop is likely to be supportive for underlying commodity demand, especially with Chinese demand also remaining health.”

“Accordingly we foresee an environment in 2015 that is beneficial for both the US dollar and commodity prices,” it said.

(Editing by Mark Shaw)

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