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Gold looks promising in 2-3 years: Bank of America Merril Lynch

iconFeb 27, 2015 13:27
Source:SMM
Gold is likely to witness further pressure in the near term, but future looks promising for the yellow metal, notes Bank of America Merril Lynch.

Author: Paul Ploumis26 Feb 2015 Last updated at 07:17:21 GMT

NEW DELHI (Scrap Monster): Gold is likely to witness further pressure in the near term, but future looks promising for the yellow metal, notes Bank of America Merril Lynch. Hopes of US Fed rate hike has made gold unattractive currently. Investors are seen unwilling to hold gold. As a result, gold is likely to slide down further to $1,100 levels during the next three months. However, in a 2-3 years perspective, gold looks promising, says Francisco Blanch, commodities analyst at the bank.

Gold had started 2015 on a strong note, paring some of the losses made during the previous year. The prices of gold had surged nearly 8% during the first month of the year. However, gold has erased much of its gains. The rising strength in dollar driven by rate hike expectations coupled with blooming equity markets have acted against gold. The return from gold has remained subdued in the past several months, taking gold away from the investor’s radar.

However, the long term prospects for gold still look bright. The positive longer term outlook is based on two factors. Firstly, the negative-to-zero yielding government bonds are likely to make gold more attractive. For instance, government bonds in several European countries including Switzerland, Germany and Finland are presently trading at negative nominal returns for the investor. The yields from these instruments are likely to fall further with the announcement of ECB quantitative easing program. Almost one-fifth of the global government bonds are currently trading at negative return.

Secondly, the limited hike in interest rates by US Fed is also likely to extend support to gold prices. Once the Fed hikes are out of the way, gold is likely to get out of its tight trading range. Fading bull market run in dollar may boost gold prices further. However, it may take two to three years for that to happen, BofA Merril Lynch observes.

BofA Merril Lynch
golde price forecast
investment demand
US Fed
interest rate
ECB
supply
deficit

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