HSBC looks for $1,300 Gold on weaker dollar, brexit concerns

UNITED STATES April 27 2016 9:29 AM

NEW YORK (Scrap Register): HSBC said a weaker U.S. dollar and hedging related to a U.K. referendum on leaving the European Union – often referred to as a Brexit -- are both bullish for gold. 

The bank’s foreign-exchange-team looks for the euro to rise to $1.20 by year-end. “This is supported by the view that the ECB (European Central Bank) and BOJ (Bank of Japan) seem to have initiated a truce in the global currency war with their move away from focusing heavily on their currencies,” analysts at HSBC. 

“This will work to gold’s benefit, we believe. Another bullish driver of gold may be the potential for hedging ahead of the U.K.’s referendum on EU membership,” 

HSBC forex strategists list reasons why the Swiss franc is a good currency hedge ahead of the referendum. “These include the likelihood of a rally in case of a vote to leave the EU, but likely less downside if the referendum affirms the U.K.’s membership in the EU,” HSBC added. 

HSBC believes this asymmetric relationship also applies to gold. The bank continues to see the potential for gold to reach $1,300 an ounce this year. As well as a weaker USD, HSBC sees global risks and a modest recovery in oil prices as gold-bullish.