Bank of America Maintains its Twelve Month Gold Price Target at $2000/0z

Along with the developed market (MSCI world) index falling by around 15% and the emerging markets indices dropping by as much as 25%, gold prices too have been unusually volatile since last month. Gold, which is considered a hedge in financially volatile times, fell 15% from crest to trough in the last 2 months alone. On 8 different occasions prices increased or dipped by more than 3%. As a result of this volatility, investors seem to be favoring dollar assets.

Analysts stick to forecasts

Typically, such gold price variations are seen over a complete year. Therefore it is a good time for analysts to review their gold price forecasts and see if the correction means change in gold fundamentals. In spite of the correction, a majority of analysts have stuck to their bullish views. Some analysts have even raised their gold price forecasts for 2012. Bank of America has maintained its earlier twelve month forecast that gold prices will touch $2000/oz and restated it through its Merrill Lynch unit.

Broad based liquidation of various asset classes across different markets have led to a drop in the gold prices. Recently, the quotations of all the metals including gold were under pressure. However, this was not unexpected in the current environment of risk aversion. The correction was driven by factors like the sale of gold during low liquidity periods by some market participants and the liquidation of positions by investors to cover losses in other markets.

Physical asset holding by ETFs remains stable

Despite the drop in prices, assets under physically backed ETFs (exchange traded funds) have managed to remain stable. This was stated as one of the reason by the Bank of America Merrill Lynch analysts for their belief that the recent gold price correction did not reflect change in gold fundamentals. The commodity note released on Thursday also pointed out that as the prices dropped over the last few days, ETFs actually saw inflows. The analysts further said that considering the cyclic and structural head winds to growth as well as the ongoing debt issues in developed nations and the implications that these factors have on interest rates and FX, they maintain their earlier twelve month gold price forecast of $2000/oz.

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