Another gold bear turns big-time bullish: BNP Paribas predicts $1,400 bullion

G Gold News | Apr 21, 2016

Precious metals were on fire ahead of and just after the European Central Bank meeting Thursday, with silver hitting a new 11-month high of $17.70 and gold reaching $1,270 before losing ground.

The metals also may have gotten a safe-haven boost after billionaire investor George Soros warned that China’s current monstrous debt situation “eerily resembles what happened during the financial crisis in the U.S. in 2007-08, which was similarly fueled by credit growth.”

Two Federal Reserve economic reports also helped gold and silver. The Chicago Fed National Activity Index slipped further into the red, while the Philadelphia Fed’s manufacturing survey alsowent negative.

“Helicopter money” for Europe?: Gold and silver soared early on as the ECB announced it is keeping its easy-money policies in place without new adjustments — until ECB President Mario Draghi’s post-meeting news conference. There, Draghi confronted the notion that the ECB might resort to so-called “helicopter money,” or highly inflationary, direct cash injections, to juice the eurozone economy.

Although Draghi denied the plan was under discussion, its mere mention was enough to weaken the euro while strengthening the U.S. dollar. A stronger greenback usually translates into lower dollar-denominated gold and silver prices.

Meanwhile, a drop in weekly initial jobless claims in the U.S. also dented bullion prices. “Gold ticked negatively on that good economic number because it brought back the thought of a rate increase being back on the table,” RBC Capital’s George Gero told Bloomberg.

$1,280 breakthrough key to gold: Traders also took the opportunity to cash in on what had been a roughly $25 gain for gold Thursday morning. “Gold and silver prices are pulling back due to some profit-taking, as traders are not sure what to expect from future monetary policy,” Nico Pantelis of the Secular Investor told MarketWatch. However, if gold can break through $1,280, “we will see the price of the yellow metal gain higher ground to $1,350,” he said, while setting an intermediate target for silver at $19.

Gold’s staunch performance has driven another major investment bank from the bearish camp to the bullish camp. French banking giant BNP Paribas is predicting that gold can hit $1,400 in the next 12 months. That’s a major reversal for the bank, which at the start of 2016 was predicting gold would fall below $1,000 and average $960.

“There has clearly been an uptick in general investor concern about the eroding effectiveness and potential overreach of global central bank policies,” BNP’s wealth-management arm wrote. “We expect this concern to remain an important component of the investment landscape in coming quarters.”

Gold makes sense amid negative rates: “Gold seems to have recovered its safe-haven status,” it added. “Gold can play a portfolio-diversifying role during periods in which faith in U.S. financial assets is being challenged.”

“We have been recommending gold as a portfolio hedge,” confirmed BNP’s Prashant Bhayani. “As a hedge we think it makes sense, especially with the negative-interest-rate world we’re in right now.” Bhayani also sees central banks as important buyers of gold going forward.

And in a recent Bloomberg appearance, Tethys Partners strategist Bob Iaccino also sees gains ahead for gold, though milder. “I think you’re going to see gold rally, but I think in the short term … you’re probably going to see a little bit of pressure, but I do see it hitting about $1,300 by the end of the year,” he said.

Other banks issue more modest outlooks: Not every analyst sees total peaches and cream for precious metals. Three investment banks, while not saying the bottom will drop out, think the top is in for gold. ANZ sees gold staying at $1,250 for the rest of 2016 and maxing out at $1,350 by the end of 2017.

And Macquarie thinks gold could recede to $1,199, while UBS has issued an average price target of $1,225 for this year, although it conceded some upside potential to $1,325. “Overall, we think that gold fundamentals are broadly stable,” it said.

Meanwhile, ABC Bullion chief economist Jordan Eliseo thinks gold could reach $1,350 this year.

With the ECB meeting now out of the way, gold’s attention will soon turn to the Fed, which is conducting its next major policy meeting on April 26-27, followed by a meeting of the Bank of Japan. The Fed isn’t expected to raise rates next week, but Lindsey Group analyst Peter Boockvar warned that recently rising commodity prices could mean that inflation is nearing the Fed’s 2% target. Also key for markets next week will be the U.S. government’s first-quarter GDP estimate, along with new-home sales numbers and earnings reports from some major corporations.