Bank of America Merrill Lynch cut down its gold price forecast for 2013 and 2014. The outlook update was on the back of US economic improvement and nominal rates increase.
Bank of America lowered its average price expectations for 2013 by 6.9% to $1,680 per troy ounce. The 2014 gold forecast was reduced by 9.8% to $1,838 per ounce. At present, the bank doesn’t project the yellow metal to break above $2,000 per ounce till next year. This is a major shift from the previous gold price outlook. Before the forecast suggested a move above $2,000 in the second quarter of 2013 .
An official metals strategist at Bank of America Merrill Lynch commented on the gold price forecast update that the yellow metal have been range-bound for several quarters after a multi-year rally. According to BofA strategist, in the near term gold prices will meet more obstruction drivers.
One of these drivers is the US nominal rates increase. The nominal rate raises the cost of gold holding. Therefore it will bring down the investment interest in precious metals. Improvements of the economic setting in the US also raise concerns. Investors have more doubts over the safe-haven appeal of the yellow metal.
Meantime a meaningful pick-up of inflation was prevented by sizeable production gaps in many countries. Inflation projections also played a role in the current recovery situation.
It is widely spread belief that gold is hedge against inflation. BofA is positive that there are enough sufficient drivers that could propel gold prices in the longer term. Long term expectations are still optimistic, despite the near-term headwinds.
According to Merrill Lynch strategist, most importantly, real yields may turn lower over the next year. Emerging market central banks also could decrease their foreign-exchange reserve diversification. That will come in respond to currency interventions aimed to offset a weaker yen. Yet, cheaper Japanese money could provoke increased gold buying later this year. Emerging markets are expected to become even more flourishing. Therefore, BofA’s forecast suggests that investors will gain back their confidence in the gold market. That will result in stronger volumes of jewelry buying.
