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HSBC: Could Gold Touch $1,300 on a Weaker US Dollar?

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HSBC on the dollar

HSBC sees the possibility of $1,300 per ounce for gold if the United Kingdom chooses to opt out of the European Union. The bank’s foreign-exchange team looks for the euro to rise against the US dollar by the current year’s end. Thus, the weakness in the US dollar will further help dollar-denominated assets.

The US dollar and gold prices are often inversely related. Though there may be short-term variations, in the long run, this relationship will likely hold strong.

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Gold’s potential

Analysts at HSBC support the view that that the European Central Bank and the Bank of Japan have initiated a truce in the global currency war. According to the bank, the possible Brexit move by the United Kingdom and the weakness in the US dollar are both supportive of a rise in gold’s price.

The bank also mentioned that gold may be driven by potential hedging prior the Brexit referendum. The Swiss franc could also be a useful instrument for hedging purposes. The oil market’s recovery could also add some stimulus to the rise in gold prices.

Precious metals funds and miners

Precious metal gains are often quickly reflected in funds such as the iShares Gold Trust ETF (IAU) and the iShares Silver Trust ETF (SLV). These two funds closely followed gold and silver and rose 2.1% and 14.9%, respectively, on a trailing-30-day basis.

The mining shares that remained the biggest gainers in the past month were Yamana Gold (AUY), First Majestic Silver (AG), and IAMGOLD (IAG).

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