By  Paul Ploumis 17 Aug 2015  Last updated at  08:25:37 GMT

NEW DELHI (Scrap Monster): The latest research report released by HSBC forecasts substantial upside to gold prices towards the end of the current year. According to the bank, gold prices may surge by nearly 10% towards end the year. The bank notes that prices of the yellow metal have dropped almost 5.7% since January this year, which by itself has sowed the seeds for the next gold rally.

HSBC points out several arguments to support their viewpoint. Firstly, the yellow metal prices have already factored in the US Fed’s rate hike decision which is expected to come towards end-2015. Gold is unlikely to react negatively to the decision as feared by market participants. Furthermore, actual Fed hike decisions have weakened US dollar and strengthened gold prices in the past. The previous tightening cycles by the US Fed has led to weaker dollar. This in turn bodes well for gold as it makes less expensive for holders of other currencies.

Short positions in gold are at all-time highs currently. This may trigger a sharp short-covering rally in the yellow metal, in case of a reversal in investor sentiment. Additionally, gold demand in emerging markets including largest gold-consuming nations such as India and China are likely to escalate on lower gold prices. The recent announcement that Chinese Central Bank has upped its gold reserves by 57% since 2009 will act as a sentiment booster for gold in the long term. Also, there exist huge possibilities for central banks elsewhere in the world to increase their holdings in gold accordingly.

According to HSBC, there is some light at the end of the tunnel for gold prices. The prices are likely to stage sharp recovery to $1,200 per Oz -$1,225 per Oz by end-2015.