The increasing appetite for risk came as the European Central Bank said it will co-ordinate with the Federal Reserve to lend dollars to eurozone banks. However, the European debt crisis has still not moved in to its endgame.
Gold slipped below $1,800 an ounce last week & equities rallied. As investors now look for more risk in their portfolios, has the gold cost finally hit its peak?
Brokers definitely think the pullback is a blip.
�We do not expect the cost of gold to drop much under the $1,800 a troy ounce mark, though, as the market develops a powerful physical purchasing interest in gold at around this level,� Commerzbank (Other OTC: CRZBF.PK � news) said.
HSBC (LSE: HSBA.L � news) agrees. �We think gold�s 10-year bull market remains firmly intact, despite high volatility,� analyst James Steel said as they raised its forecasts for the gold cost. �The eurozone debt crisis, money wars, & deep uncertainty among investors are among the factors driving prices higher,� it added.
�Furthermore, uncertainty persists: according to reports in the media, France now risks a downgrade of its credit standing.�
�As central bankers & other policymakers run out of options, investor disquiet is increasing & paper markets look increasingly uncertain,� Mr Steel added. �The possibility that government treatments for debt issues will indirectly lead to higher gold prices through inflation is also encouraging investment in gold.�
The bank raised its 2012 average cost forecast to $2,025 from $1,625 & its 2013 view to $1,850 from $1,550. The new long term cost forecast was increased by $125 to $1,500 an ounce.
Last week also saw the publication of the quarterly Gold Survey from precious metals consultancy GFMS, in which it predicted prices would hit $2,000 before the year finish.
�Given strong demand for bullion from the private & non-private sectors � the comparatively constrained increase in scrap supply & the �stickiness� of jewellery demand in the fact of higher gold prices, they can basically envisage gold breaking through the $2,000 market before year-end,� GFMS said.
GFMS expects that central banks will purchase a net 336 tonnes in the full year, which will be the highest annual figure since the collapse of Bretton Woods 40 years ago.
The survey revealed that central banks had turned net buyers of gold with a vengeance in the first half of the year. Official sector purchases rose to a net 216 tonnes triple the figure seen last year. This is flattered by the fact that the International Financial Fund done its sales programme in December 2010.
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