UNITED STATES September 07 2015 12:25 PM
NEW YORK (Scrap Register): Given the macroeconomic backdrop and acknowledging the persistent headwinds to gold prices of late, Bank of America Merrill Lynch is reducing average 2015 forecasts by 6.8% to $1,122/oz; gold should fall below $1,000/oz in 2016.
Continued hawkish comments from the Fed against falling inflation are bank's most notable concern. In fact, the combination of higher nominal opportunity costs and lack of inflation has hardly ever been bullish in the past 40 years.
Having said that, BofA Merrill Lynch believes that gold should stabilise when inflation picks up, which is one reason that we maintain an average forecast of $1,250/oz in 4Q16, when US CPI is set to expand by 2.1% YoY.
Forecasts: rising US rates, but falling inflation is bearish near term
Gold prices are largely influenced by four macroeconomic indicators, with USD and real interest rates statistically the most significant drivers.
While tighter US monetary policy is bearish for gold near term, against the backdrop of subdued inflationary pressure, BofA Merrill Lynch believes a hawkish Fed exacerbates headwinds to the precious metals also through exchange rates.
Monetary policy differentials between Europe and the US are one of the reasons that our FX strategists expect EUR to trade at parity against USD by year-end.