US banks at odds on gold price predictions

Gold price forecasts by major US banks are diverging. While analysts at JPMorgan and Bank of America boosted their target price for the yellow metal, Wells Fargo warned global investors of a gold bubble that will likely burst soon. But the factors behind the sharp gold price rally in recent weeks have not changed; on the contrary, the world's debt problems are just as intractable, with no solution or easy way out of the problem.

JPMorgan revised its gold price forecast sharply upwards last week. The bank's analysts expect the yellow metal to climb to $2,500 per troy ounce by the end of this year. JPMorgan's forecast was followed by a report from Bank of America (BofA) this week, whose analysts see the gold price rising to $2,000 per troy ounce within the next twelve months. BofA said that physical gold holdings had to be seen as the “ultimate collateral” because gold has no credit risk.

Many emerging-market countries have already recognised this, with central banks continuing to diversify out of US dollars and euros and into gold and other currencies. This process is putting further downward pressure on the US dollar, while the escalating debt crisis in developed countries is driving a growing number of investors into safe havens such as gold and other tangible assets.

However, Wells Fargo warned global investors that in its view, gold is a bubble that could burst soon. Speculative demand among investors has led to a big leap in gold prices in recent months – a price rally that Wells Fargo views as unsustainable.