Gold is currently trading at around $1,700/oz. The metal has seen a 12-year rally and hit a record nominal high of $1,920 in September 2011, although some commentators have recently called a peak next year.
BofA ML metals strategist Michael Widmer and global investment strategist Francisco Blanch have maintained a $2,000/oz target on gold in expectation of further monetary easing by the world’s central banks next year.
“Having traded just above $1,500/oz through most of 2012, prices finally saw an uplift in late-summer as expectations over aggressive policy easing materialised into announcements by the Fed and the ECB of additional support,” they wrote in their 2013 outlook.
“We have a six-month target of $2,000/oz, but see scope as well for prices to rise to $2,400/oz by the end of 2014. These targets reflect our view that the Fed will maintain mortgage purchases until the end of 2014 and will move to buy Treasuries following the end of Operation Twist in December 2012.”
The strategists expect the US Federal Reserve’s purchase of $40bn of mortgage-backed securities each month will lift gold prices by 0.7% within four months. If this continues to the end of 2014, a cumulative $360/oz will be added.
Furthermore, they argued that the Fed could increase its monthly purchases by $45bn once Operation Twist comes to an end – which would drive the price of the metal towards the $2,400/oz mark.
Widmer and Blanch added that a recovery in the global economic outlook could harm this outcome. Investor sentiment has become increasingly important to the metal’s price, as investor demand has crowded out jewellers in recent years.
“A firm recovery in the US and global economies will remain the greatest risk to gold prices over this new phase of QE3, as a rapid and disorderly unwind of this monetary easing cycle would likely drive investors out of gold, in our view,” they concluded.
Last week, Goldman Sachs lowered its 12-month forecast on gold prices to $1,800/oz and introduced a 2014 forecast of $1,750/oz while BNP Paribas said gold will average $1,865/oz in 2013 before falling to £1,780/oz in the following year.