Changed sentiment stemming from increased uncertainty from economic and political outlooks has prompted GFMS to revise its 2016 average gold price forecast.
These include the Brexit, reduced expectations of a rate rise from the Fed, a wobbly Italian banking sector and the US presidential race, it said in its latest gold survey report on Tuesday.
“Gold is likely to retain its status as a risk hedge for the remainder of the year, particularly as uncertainty persists and risks to the global economy remain elevated,” GFMS added.
It now sees the metal averaging $1,279 per ounce this year, up from $1,184 in its forecast in April. The spot gold price was recently at $1,321.00/1,321.40 per ounce, up $4.35 on Monday’s close.
“The impact of the vote on 23 June for Britain to leave the European Union is still reverberating across markets and the gold industry,” it said.
In the aftermath of the vote, the price of gold surged to a 28-month high of $1,360. This rally was fuelled by a boost in demand for safe havens causing strong physical demand in some areas and came despite a marked appreciation in the US dollar and substantial selling in other areas, especially after the surge in the price, GFMS said.
Following the initial Brexit shock, market seem to have calmed down and volatility levels have receded from previous highs although they remain elevated, it noted.
Still, GFMS expects more volatility and uncertainty to unfold over the coming months because “the UK is facing political leadership challenges, a long and hard road of negotiations with the EU states, while economic consequences of a Brexit are yet to be felt”.
(Editing by Mark Shaw)