Last week, JP Morgan forecast that gold would hit $2,500 by the end of the year.
This is not an isolated trend among the big banks.
This week, Bank of America predicted that gold wold hit $2,000 within a year:
High commodity prices have now created a terms-of-trade shock for importers, feeding into current accounts, the financial sector and, ultimately, sovereign debt.
How will these imbalances unwind? Physical gold is the ultimate collateral because it has no credit risk, so EM Central Banks have been diversifying their foreign exchange reserves into gold and other non-dollar, non-euro assets in recent quarters. Looking ahead, the deterioration in credit quality in Europe and the US coupled with an increased probability of QE3 means these pressures will continue.
As a result, we revise our 12-month gold target to $2000/oz.