The precipitous downturn in gold has taken the market to levels not seen since March 2009 but low prices may contain the seeds of the next rally, according to HSBC.
The bank projects prices will end the year as much as 10 percent higher than current levels; gold closed at $1,114 an ounce on Friday.
Gold has struggled to regain its allure this year, down 6 percent since January, as investors continue to shun the precious metal in favor of higher yielding assets such as equities.
But there could be some light at the end of the tunnel, with HSBC offering food for thought on the possibility of a gold resurgence. In a report on Friday, the bank set out five reasons its experts believe gold prices could recover to $1,200 per ounce to $1,225 towards the end of the year.
1. Fed tightening is already priced into gold
With a shift in the Federal Reserve's policy having been anticipated in the financial markets since as early as 2013, some of the declines based on a rate rise have already occurred, the bank said.
Therefore, gold's reaction to the rate hike – whenever it comes – may not be as negative as feared.
2. Actual Fed hikes could see gold prices rise
History suggests that the U.S. dollar tends to weaken after the Fed raises rates, which bodes well for gold, which is inversely correlated to the greenback. One reason for this inverse correlation, according to analysts, is that a weaker dollar makes gold less expensive for holders of other currencies, raising its appeal.
A look at the previous four Fed previous tightening cycles that have happened over the past 30 years, the dollar has fallen for the 100 days immediately after the first rate rise.