Credit Suisse sees gold continuing to move higher on ETF buying and declining mine supply.
They firm raised their forecast by 10% in 2016 to average $1,270/oz and 12% in 2017 to average $1,313/oz..
They said the combination of declining real interest rates, the Fed’s rate hike deferral, a weaker USD, and safe haven demand drove ETF holdings 9.9Moz higher in Q1, from 47Moz to 56.9Moz, while the gold price rose from $1,054/oz to peak at $1,272/oz.
They note while Gold is taking a breather, the three-year downtrend has been reversed”
“Prices have pulled back by ~$50/oz to $1,220/oz and bears believe gold will see retracement on a strengthening US economy and subsequent Fed rate increases. The next FOMC meetings are April 27th , June 15th and July 27th. We do not believe a return to sub $1,150/oz is likely or sustainable for the gold market as it would accelerate the existing mine supply issue. Meanwhile central bank and gold bar purchasers have as good a reason as ever to diversify into fungible assets whose value cannot be printed away by other central banks.”
The also said gold ETF buying will continue on negative interest rates:
“Gold performs particularly well in declining or negative real rate environments, whether due to high inflation or low nominal interest rates. We expect US longer term (10 year+) bond yields to remain low, under pressure from lower yields in other jurisdictions (Europe, Japan, UK and Canada are all examples), even if the Fed hikes its short term rate. The Fed’s 2004-2006 rate hike cycle showed that gold prices can rise during a hiking cycle when the yield curve flattens.”