Gold will extend this year’s surprise rally and climb to the highest price since September on the outlook for accelerating inflation, USAGOLD Centennial Precious Metals Inc. said.
The metal will reach $1,400 an ounce by the end of the year, also supported by higher demand from Asia, Peter Grant, chief market analyst at USAGOLD in Denver said in a telephone interview yesterday. Bullion will climb even if the Federal Reserve increases interest rates, because gains in borrowing costs will probably be accompanied by rising consumer prices, he said.
Gold futures surged 57 percent in the two years through June 30, 2006, as the Federal Reserve raised its benchmark rate to 5.25 percent from 1.25 percent. Interest rates rose as the central bank struggled to contain inflation that accelerated to 4.3 percent, from 3.3 percent. Bullion fell 3 percent in July as the prospect of rising borrowing costs curbed the appeal of the metal as an alternative asset.
“If you look back over time, there are plenty of instances where rates have risen and gold has risen as well,” said Grant, who has tracked the precious metal for 28 years. “Inflation was going up and the Fed was chasing inflation by raising interest rates during that period,” he said, referring to 2004 to 2006.
The metal rallied 7.2 percent this year to $1,288.90 on the Comex in New York partly as violence in Ukraine and the Gaza Strip boosted demand for haven assets. Gold tumbled 28 percent in 2013, the biggest slump in three decades, as signs of accelerating U.S. economic growth raised concern that the Fed’s stimulus would end.
The central bank reduced its monthly bond-buying program to $25 billion on July 30, making a sixth consecutive $10 billion cut.
Gold imports by India, the world’s second-largest user, jumped 65 percent in June after the central bank allowed more banks and traders to buy bullion overseas, widening the nation’s trade deficit to an 11-month high.
“I’m primarily looking at the actual physical demand driving prices higher,” Grant said. “I also think inflation is going to pick up a little bit as I anticipate that energy prices are going to rise by year-end as well.”