Gold will break out of a narrow band of trading in which the precious metal has been stuck for 12 months and will head towards $1,700 an ounce or higher as central bank moves and production problems increase the demand for gold, analysts told CNBC.
Priced in euro terms, gold posted its highest close of 2012 on Friday after the Federal Reserve’s Chairman Ben Bernanke left the door open for a further round of quantitative easing (explain this) in a highly-anticipated speech on Friday.
As investors pinned their hopes on hints of further QE, spotgold rose nearly 5 percent over the past two weeks, hitting a five-month high of $1,692.71 on Friday, a rise of up to $40.
Gold has risen 70 percent between December 2008 and June 2011, after two rounds of QE by the Fed totaling $2.3 trillion, according to Reuters.
Phil Roberts, technical analyst at Barclays Capital told CNBC that while central banks in Europe and the U.S. don't act to further stimulate their economies, gold remained attractive as a safe haven.
After a 12-month consolidation phase, we should expect the gold price to continue on its upwards trend, he said.
“Last Friday, priced in euro terms, gold posted its highest close of the year,” he told CNBC, emphasizing his point on an “Ichimoku Cloud”,a chart used in technical analysis which identifies market trends and direction.
“What we’re seeing now is gold pushing against the top of the cloud (above the middle of the range) pushing beyond $1,700 an ounce and there’s another 100 dollars to the topside quite easily,” Roberts said.
“This is a good time for gold,” he added, agreeing with analysts’ predictions that a breakout for precious metals was imminent.
“There is one more level to break out, a couple of retracement levels and the top of the weekly cloud [to break out], but once you get above that $1,700 level you’ve got a bit of clear water and there should be some follow-through.”
Ned Naylor-Leyland, Investment Director at asset management firm Cheviot, told CNBC he was surprised at the rally, but believed it would continue.
“Personally, I was a little surprised at the size of the move but it’s now in technical breakout mode.”
Gold’s rebound in the face of further monetary stimulus, still 20 percent off highs seen in 2011, has been forecast as short-lived, though Naylor-Leyland disagreed for several reasons.
“I’d say the rebound is just starting,” he said. “If you look at the charts we’re literally just back into a technical rally phase. In fact, we haven’t been solidly for a year…so let’s see where we go from here.”
He added that the higher gold price would also be sustained by the rising costs facing mining companies in terms of extraction and wage labor costs.
“There’s no doubt there’s a big problem. Input costs have been rising [and] the gold price hasn’t kept up with it…The marginal cost of production is not at all helpful for the major gold producers [as well as] wage input problems for the big companies.”
Speaking about a potential return to a gold standard - to link the dollar to gold - that the Republican party are making a part of their policy (a standard that was last axed by President Nixon (link)during the oil crisis in 1971) Naylor-Leyland said it would need serious consideration and could “open up a can of worms untouched for 40 years”.