Gold price to rise once Fed lifts interest rates – Commerzbank

Otmane El Rhazi from The Bullion Desk.

The gold price will probably rise when the US Federal Reserve raises interest rates in the autumn, Commerzbank predicted.

The members of the Fed’s policy board are locked in a debate on when will be the right time to raise rates, which have been near zero since December 2008.

At its last meeting, the Fed removed all calendar references in its forward guidance and said that recent economic weakness might be “transitory” in nature. This means that bank is now entirely data dependent and a rate increase could happen at any future meeting.

Gold has since struggled for some time to make any sizeable gains – higher US interest rates would raise the opportunity cost of holding gold and force investors into more yield-bearing assets such as bonds.

Gold will struggle to rise while the Fed continues to debate over the summer months but “once the uncertainty about this is behind us, the gold price should rise moderately”, Commerzbank said in a note on Tuesday.

It sees prices climbing to $1,250 per ounce by the end of the year given the cautious pace at which the US central bank is likely to raise rates, it added.

The gold price has been locked around the $1,200 mark for the last few months and was last effectively unchanged from the start of the year at $1,189 per ounce.

While gold priced in the dollar has performed poorly, Commerzbank sees potential in gold priced in euros, it said.

Gold in euro terms is up 11 percent for the year so far at 1,090 euros per ounce, having started the year at 978.20 euros. It could hit 1,200 euros, Commerzbank said.

Since early March, the European Central Bank has been buying government bonds and other securities at a pace of 60 billion euros per month, which will increase the bank’s balance sheet by more than one trillion euros by September 2016.

“There has been a close correlation between the amount of the ECB’s balance sheet and the gold price in euros,” it said.

The bank also sees potential in the silver price, forecasting that it could hit $18 by the fourth quarter should the 12-year trend of rising mine production end – overall mine supply is seen falling as much as four percent – and on improved physical demand.

Silver is so far up around three percent for the year at $16.20 per ounce, having hit heights of $18.49 in January.

(Editing by Mark Shaw)

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