Commerzbank said Wednesday it expected gold to rise markedly by the end of 2102 thanks to demand picking up again in the second half of the year. The bank forecast the precious metal would rise to $1,900 an ounce, reaching last year’s record.
Benchmark U.S. COMEX gold futures for August delivery were last up $6.50 at $1,620.30 an ounce. The contract was up about 3 percent so far this year on uncertainty over the euro zone debt crisis and possible further U.S. monetary easing.
Disappointing demand in India for gold has been offset by strong demand in China, which will likely overtake India as the world’s largest consumer of gold this year, analysts at Commerzbank said.
However, jewelry demand in India was expected to recover after the monsoons, due to the wedding season and important Hindu festivals in the following months.
“A good monsoon season has a positive effect on the incomes of the rural population, which accounts for around 70 percent of gold demand in India,” the analysts said.
Commerzbank lowered its forecast for silver this year to $35 an ounce due to slow economic growth.
The bank forecast platinum $1,750 an ounce and palladium at $750 an ounce by the end of the year after a recovery in the second half.
Spot gold was last up 0.72 percent at $1,621.15 an ounce, down from an earlier high of $1,615.20, while U.S. gold futures for August delivery were up $9.30 at $1,623.10 an ounce. The spot price climbed as high as $1,617.40 an ounce on Tuesday as a move through key chart levels prompted fund buying.
Concerns over the outlook for the euro zone continued to simmer after worries over Spain’s banking sector were heightened on Tuesday by a sharp rise in its borrowing costs, while Greece headed for elections this weekend that could determine its future membership of the euro zone.
Although gold has failed to react positively to elevated risk in the euro zone, signs that economic jitters are spreading from Europe to the United States may prove supportive to prices. The metal rallied on June 1 as poor U.S. jobs data reignited expectations for another round of U.S. quantitative easing (QE), which could undermine the dollar and boost interest in gold as an alternative to volatile currencies.
“(Federal Reserve Chairman Ben) Bernanke, in comments made to the Congress committee last week, seemed to be intimating that QE was off the table,” said Citigroup analyst David Wilson. “But I wonder (whether) if Europe continues to drag, the likelihood of QE continues to grow,” he added. “That in itself should be supportive for gold.” He said he expected no further monetary stimulus before the November U.S. elections, however.
European shares inched down, yields on safe-haven German bonds rose and the euro flat-lined on Wednesday on worries about contagion from Spain’s banking crisis and the Greek elections.”So far the financial aid promised to Spanish banks has failed to have its desired effect. On the contrary, the sell-off of Spanish and indeed Italian government bonds continues,” Commerzbank said in a note. “The sovereign debt crisis can be expected to keep the markets on tenterhooks for quite some time yet and cause demand for gold to pick up again — not only among retail investors.”
Next Big Level
From a chart perspective, gold is currently holding near its 50-day moving average at $1,613.07. Technical analysts identify the $1,640 an ounce area as the next big level to break for gold.
“Only a break above the current June high at $1,641 will (put) the 50 percent Fibonacci retracement of this year’s decline at $1,659.07 and the May high at $1,672.10 in (gold’s) sights,” Commerzbank said in a note. “Below here, the outlook will stay neutral.”
Kazakhstan, which last week said it planned to boost its gold reserves to 15 percent of its total gold/forex holdings, has now announced it will raise that proportion to 20 percent through the acquisition of 20 tons of gold from the Kazzinc mining corporation and a further 4.5 tons from Kazakhmys.
Kazakhstan is one of a number of countries, including Russia, Mexico, Colombia and South Korea, that have built up their official gold holdings in recent years. Most buying has been seen from Asian and emerging market central banks.
Among other precious metals, silver was last up 0.35 percent at $29.04 an ounce, tracking gains in gold.
Spot platinum was last up 1.18 percent at $1,464.25 an ounce, while spot palladium was up 0.38 percent at $622.75 an ounce. The platinum/palladium ratio, which measures the number of palladium ounces needed to buy an ounce of platinum, rose to its highest in a week on Friday at 2.34 as platinum marginally outperformed, boosted by supply fears from major producer South Africa.