HSBC expects Gold rally to continue above $1,100 an ounce

UNITED STATES January 22 2016 10:17 AM

NEW YORK (Scrap Register): Gold may well build upon recent gains above $1,100 an ounce, although there is potential for a near-term pullback first, said HSBC. 

The bank cited recently sluggish U.S. economic data, with the government on Wednesday reporting the Consumer Price Index dipped 0.1% and housing starts fell 2.5% in December, with this coming after recently soft retail sales.

As a result, market expectations for a Fed rate hike are receding. This is gold-supportive. Also, recent global trends have helped the metal, HSBC continued.

According to HSBC, concerns in China have spread to the U.S., benefitting gold. The financial markets have been rattled this year with dislocation stemming back to December 2015. Since the Fed raised interest rates in December, the oil price has fallen by more than 20%. The S&P 500 stock index is down more than 10%. Most economists’ growth forecasts have been ratcheted lower.

The labor market has been strong, creating 292,000 jobs in December, even though other data has been soft, which in theory suggests weak productivity growth. 

“Weak or falling productivity is traditionally gold-friendly. Although prices may pull back near term, we look for the gold rally to continue above $1,100 an ounce,” said analysts at HSBC.