Australian banks upbeat about gold prices

Financial institutions in Australia believe gold prices will remain sturdy until the end of the year, despite negative forecasts from global organisations.

The precious metal was up 3 per cent in trading on Monday (November 10), after poor US jobs data suggested a rise in interest rates could be some way off.

However, nearly 25 per cent of respondents to a recent Reuters survey predicted the commodity could slump below US$1,000 per ounce before the end of the year. The value of gold is already down 13 per cent since March 2014.

According to the Sydney Morning Herald, Australian banks appear to be bucking this trend. ANZ and UBS both estimated that the precious metal will close the year at between US$1,180 and US$1,200, above its current US$1,156 level.

Neither of the companies took part in the Reuters research, and ANZ Commodity Strategist Daniel Hynes isolated several reasons why his organisation is sticking with its original forecast of US$1,180.

“We’ll see the strength in the US dollar abate a little bit. There’s still a few macro risks out there that may do enough to keep investors engaged,” he explained.

The Indian festival season also had a significant impact, firming up prices as many people flocked to buy gold.

Mr Hynes admitted that US factors will take precedence over the next seven weeks, with many investors eyeing the strength of the dollar to see whether this will weigh on prices.

Last month, the US Federal Reserve brought a halt to its quantitative easing program, the effects of which may also cause uncertainty in global markets over the next few months.

Other factors affecting gold prices

UBS said precious metal values had slumped, despite a number of supporting trends, such as geopolitical tensions in Ukraine and the Middle East.

In a market assessment, the bank offered similar insights to ANZ, claiming the US dollar outlook remains the “biggest downside risk” for gold. However, UBS said a market correction in the country could be a positive catalyst.

The upcoming Swiss referendum on gold may also have an impact, as passing the legislation would require the nation’s central bank to store 20 per cent of its balance sheet in physical bullion. This would require the financial institution to buy 1,800 tonnes of gold bars to bring its holdings up to the required amount.

Chris Weston, an IG analyst, said: “The central bank wouldn’t buy 1,800 tonnes of gold in one hit and would work the buying through the market over a multi-year period. However, we would clearly see a spike on the day.”

He added that the polls are currently close, so gold investors may want to keep an eye on the decision as it is likely to have serious repercussions for the commodity’s market.

Another factor that could cause upheaval is the introduction of an automatic trading system for determining gold prices in the new year. This will replace a twice-daily phone call between big banks that has been the tradition for over 100 years, and is aimed at lowering the risk of price manipulation.

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