2011-12-22

Morgan Stanley forecasted the gold will reach $2,200 per ounce in 2012

The gold price traded near unchanged Wednesday, oscillating around the $1,615 per ounce level. Gold prices surged as high as $1,641 per ounce overnight before backing off heading into the opening bell on Wall Street. News that the European Central Bank awarded $645 billion in three year loans, the highest total ever for a single operation, propelled gold higher in the overnight session.

While Morgan Stanley highlighted that the chorus of those calling for the end of the gold bull market has risen substantially of late, it believes such calls are misguided. “While seasonal and non-gold market factors have undoubtedly played an important role in the two corrective waves of selling since September 2011, the unusual phenomenon of negative gold lease rates and falling gold prices points to other factors at work in the gold market,” the firm wrote. “We conclude that these probably relate to bank funding stress.”

Although Morgan Stanley expects such stresses to continue in 2012, it asserted that “Recent coordinated actions by six central banks, and separate actions by the ECB, suggest that non-gold-related measures to ease access to US dollar swaps will gradually ease the downside pressure on the gold price.” Furthermore, the firm predicted that the “corrective phase” in the gold price will end “when the Federal Reserve adopts a new round of quantitative easing in the H1 2012, weakening the US dollar and reigniting the safe haven trade for gold that is likely to see a renewed and successful challenge to the September 2011 high.”

As for a specific gold price target, Morgan Stanley forecasted the gold will reach $2,200 per ounce in 2012. The firm reiterated that its outlook is based on the Fed implementing QE3, which will create “the makings of a renewed upward assault on the recent all-time high” in the price of gold.

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