Commodity analysts from Bank of American Merrill Lynch reiterate in a report Monday their call that gold will end the year around $1,300 an ounce. The biggest influence for the yellow metal will be the U.S. dollar and global interest rates. The Federal Reserve is the only major central bank in a position to raise rates, but there is some concerns what impact a strong U.S. dollar will have on the economy and equity markets. “We believe the Fed does not live in a vacuum and is not able to run a monetary policy that is completely independent from non-US monetary authorities. As such, we see a risk that rate hikes will only come through at a muted pace, which in turn would help gold,” they say. The analysts also note that there is a risk of coordinated efforts from central banks as they use foreign exchange markets as a monetary policy tool. They say there is a risk that central banks could create a Plaza Accord 2.0. The original Plaza Accord was made in 1985 between France, West Germany, Japan, and the UK to depreciate the U.S. dollar against those respective currencies. “While the macro-economic environment has been slightly different, it is worth remembering that gold rallied in the wake of the Plaza Accord,” they say.
