“Deflation, while ostensibly negative for gold, also makes negative interest rates more likely as central banks move to combat falling prices. Negative rates in turn encourage the holding of some hard assets, such as gold, as investors will be reluctant to have holdings in the non-cash financial system,” said commodity analysts at HSBC in a report published Tuesday.
“Negative interest rates also wipe away any opportunity cost to gold and may be a rival of financial assets,” they added.
The analysts reaffirmed their optimistic outlook on gold as they expect prices to trade between $1,120 and $1,306 an ounce, with an average price of $1,234 an ounce.
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