Waning confidence in the strength of global economic recovery and persistent concerns over euro zone debt levels since January have prompted some leading analysts to lift their 2012 gold price forecasts, a Reuters poll showed on Thursday.
A poll of 15 analysts conducted by Reuters in the past two weeks has returned a median forecast that gold prices will average USD 1,550 an ounce in 2012. This is about 7% higher than the consensus forecast in January at USD 1,454.
While hopes were high in January that the US economy would stabilise and the euro zone debt crisis comes under control, those expectations have faded.
Spot gold hit a record high on Thursday of USD 1,594.16 an ounce after Federal Reserve chief Ben Bernanke said the Fed was ready to ease monetary policy further if economic growth slows and Moody's warned the United States might lose its top-notch credit rating.
"The US has a whole lot of issues in the economy. Managing debt is one of them, and what that will entail is a whole lot of measures that are really supportive for gold," said Bank of America Merrill Lynch analyst Michael Widmer.
"What the government would want to see is probably a higher inflation rate than before, and it would also help them if they had a weaker dollar and lower nominal interest rates. So you have got three factors that are supportive for the gold market."
Concern over euro zone debt levels has also flared up, with yields on peripheral debt rising sharply since January. The weak outlook for the euro is fuelling diversification into gold in Europe.
The poll showed that prices are expected to average USD $1,498 an ounce this year, against this year's current average price USD 1,454 an ounce, pointing to more upside for prices from here.
In the third quarter the metal is expected to average USD 1,538 an ounce, rising to USD 1,593 in the final three months of the year.
There are also some potential risks that could push prices lower. With quantitative easing expectations now at least partially priced in, any sign the United States is avoiding this route could prove negative for gold. A quick resolution to the political stand-off over raising the debt ceiling could also weigh.
But there are enough longer-term supportive factors for gold to keep analysts optimistic.
"Gold is taking support from fear, the weaker dollar, rumours, the geopolitical situation. So many things are speaking for gold," said Commerzbank analyst Eugen Weinberg, whose bank sees gold prices at USD 1,600 an ounce next year.
"We are not saying gold will go up and away. But at the moment, there are not many alternatives."
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