Gold prices would likely resume their bull run of earlier this year, ANZ said, as expectations for Fed rate hikes eased and the Brexit poll fueled risk aversion.
Spot gold prices have been trading flat at around $1,267 an ounce, after failing to decisively breach $1,300 an ounce in May, but in a note on Friday ANZ commodity strategist Daniel Hynes pointed to two elements that would likely give prices of the precious metal room to grow.
He noted comments this week from U.S. Federal Reserve Chair Janet Yellen that tamped down expectations of aggressive rate hikes this year, and as well as the expansionary, low or negative interest rate monetary policies being pursued in in Japan and Europe.
Gold prices gained more than 16 percent in the first four months of 2016 and tested the key $1,300 an ounce level in May but have since backtracked somewhat, mirroring market expectations for a Fed rate hike. Gold typically falls as interest rates rise because it is not an interest-yielding instrument.
Thirdly, risk aversion prompted by the Brexit vote — which Hynes called “a real watershed moment” for the precious metal — could push gold to $1,400 an ounce, he said.
Gold exchange-traded funds (ETFs) have also benefited from strong investor demand.
Gold held in ETFs increased by more than 300 tons in 2015 after two years of declines. Despite weakness in gold prices in recent weeks, ETF holdings have continued to rise.
“At its current pace, it is highly likely that 2016 can become the biggest year for ETF inflows, surpassing 2009 levels,” added Hynes.
“The U.K. is likely to remain a member of the E.U. for at least another two years, and perhaps longer. This should allow time for negotiations to clear up some of the uncertainties about the economic impact, particularly via the arrangements that would govern U.K. trade with the remainder of the E.U. and with the rest of the world.”