Commerzbank downgrades gold forecast, but expects metal to rise to $1,150 by end of 2015

“We are lowering our forecast to $1,150 per troy ounce by year-end (from $1,250 previously), but still expect prices to rise in the medium to long term, as we expect the headwind for gold to ease noticeably after the Fed’s first interest-rate hike,” Commerzbank said Friday, as the yellow metal hit a five-year trough of $1,072.30. The bank also said they expect a pickup in Asian demand in the second half of 2015.

The German bank looks for $1,300 an ounce by the end of 2016. However, in the short term, the lender expects a decline toward $1,000 per ounce. Analysts doubted gold can recover much as the uncertainty over the Fed persists.

“At the moment, Fed fund futures fully discount a first 25-basis-points rate hike by the Fed in December and a second one by mid-2016.”

“However, our economists consider the September meeting to be a likelier date, with a second hike in December."

“We believe the gold market is currently pricing in a more aggressive monetary tightening cycle than the money market," analysts at the bank said noting that they are convinced the metal will rebound once uncertainty over the start of the tightening cycle is over with the first rate liftoff.

"Such a price reaction was observed during the last tightening cycle by the Fed between 2004 and 2006.”

Moreover, the bank believes there will be a significant rise in the demand for physical gold in Asia in the second half of the year. Central banks will also keep buying gold, Commerzbank suggests.

The body also revised its year-end estimate for silver downward in line with gold to $16 per troy ounce, while – like gold – this is above current prices.

Analysts opine that lately, silver has been trading better than gold, with the gold/silver ratio falling to 74 from 78 in early July.