Gold prices recently fell to 5-year lows as a combination of micro and macro factors weighed on the precious metal’s complex, but HSBC sees prices recovering in the second half of year.
“In the short term we would not be surprised to see gold lower,” David Bloom, a strategist at HSBC, said in a report. “However, we are expecting a bounce by year end to $1,205 per ounce and are then expecting the price to travel largely sideways next year hitting $1,255 per ounce. by year-end.”
The bank expects a Federal Reserve rate in the near term, which will in-turn squeeze the dollar and help ease the strain on gold, according to the bank.
Because of the long anticipation built through years of warning from the Fed, the impending rate hike is already priced-into the yellow-metal.
“Gold has already fallen as a consequence of anticipated rate hikes,” the report noted. “This leads us to conclude that at least some of the declines based on a rate rise have already occurred, and that gold’s reaction to the rate hike – whenever it comes – may not be so negative.”
Detailing past instances of a rate hike, the report suggests that an interest rate hike patterned with a rise in gold prices. The bank argues that the dollar bull market is near conclusion and along with falling gold prices, physical demand will increase.
China and India remain tied to gold with the People’s Bank of China (PBoC) last week revealing higher gold reserves, which the bank views as bullish long term.
“At the very least, the statement confirmed that the largest and most influential emerging market central bank is a buyer of gold,” the report said. “The PBoC clearly accepts the arguments for gold’s diversification properties and China’s foreign exchange holdings – even if they have eased recently – remain massive.”
(Editing by Tom Jennemann)
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