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BofA Merrill Lynch is fairly bullish on gold over the next few years – they expect the shiny yellow metal to rise to $2400 an ounce by the end of 2014.Calls like this usually capture all of the attention because everyone wants to know how high gold can really go.
However, in a new report, BofA analysts Michael Jalonen, Mike Parkin, and Lawson Winder look at the other side of the trade. What is the lowest they think gold could go?
The BofA analysts say the floor is in at $1500, owing to increasing demand from emerging markets going forward:
Our analysis shows that investors will have to buy significant amounts of gold to push prices above $2,000/oz this year. However, with emerging markets getting richer, their budget allocation to non-essential items such as gold will likely increase in the long-run. This means that the marginal importance of investors could start to decline in the longer term, likely supporting a gold price floor above $1,500/oz over the next decade. In any case, a firm recovery in the US and global economies will remain the greatest risk to gold prices over this new phase of QE3, as a rapid and disorderly unwind of this monetary easing cycle would likely drive investors out of gold, in our view.
Morgan Stanley recently mentioned emerging market central bank demand and a return of the Indian consumer as two bullish developments for gold in 2013.