Commerzbank: U.S. gold market is pressured by rate hike expectations; More potential for gold in euros

German-based Commerzbank said in a recent report that it sees more potential for gold priced in euros, as lingering speculation on when the U.S. central bank lefts rates continue to pressure the U.S. gold market.

Commodity analysts at the bank said they expect the Federal Reserve to raise rates in September.

The bank said they expect gold prices to rise to €1,200 an ounce by the end of 2015, an increase of 10% from its current levels around €1,091 an ounce.

Meanwhile, they expect gold, priced in U.S. dollars to hit $1,250 by the fourth quarter, a rise of only 5% from the current price around $1,186 an ounce.

The main difficulty for the gold market remains an eventual interest rate hike from the Federal Reserve.

“Once the Fed’s first rate hike has come in autumn, the gold price will probably rise again, but its increase should turn out moderate,” commodity analysts said.

“We see more upside potential for the gold price in euros against the backdrop of the [European Central Bank]’s bond purchases. There has been a close correlation between the amount of the ECB’s balance sheet and the gold price in euros.”

While Commerzbank is bullish in the medium term, they are downbeat in the short-term and expect prices to stay under pressure during the summertime. For the second quarter the German bank expects gold prices to average $1,200 an ounce, falling to an average of $1,175 and then finally rising by the end of 2015.

“The continuing debate over the summer months about the timing of the Fed’s first rate hike should prevent a rise of the gold price in USD for the time being,” they say.

When the uncertainty is over, the gold price should rise moderately to 1,250 dollars/oz by the year-end, as the Fed is expected to progress slowly in lifting rates.

In the Eastern markets, while Chinese demand has been dull since the start of the year, despite it, Commerzbank is expecting the market to turn around later in the year.

“In light of the sharp rise of the Chinese equity market in the first months of the year, gold has obviously lost some of its allure for Chinese buyers,” they said. “Since it is unlikely that in the coming months the Chinese equity market will again rise by nearly 40% as it did in the first four months of the year, Chinese gold demand should feel less headwind and gain momentum again in the next quarters.”

In the silver trading, the German bank is also more optimistic on silver prices as supply imbalances favor higher prices.

Analysts expect silver prices to climb to $18.00 an ounce by the end of the year.