Gold price just short of $1,200 as 'cautious optimism' returns

Amid a fresh sell-off on US equity markets (now in negative territory for the year) and a recovering crude oil price lifting general sentiment on commodities markets gold took a stab at the psychologically important $1,200 an ounce level on Wednesday.

Gold for delivery in April – the most active futures contract – gained over $8 or 0.7% hitting a day high of $1,199.72, before pulling back slightly in afternoon trade. The gold price is up more than 4% from its 2015 low of $1,148.20 an ounce hit last week. It was only the third time since April 2010 that the futures price closed below the $1,150 an ounce level.

Gold which usually moves in the opposite direction has shown some resilience against the rampant dollar this year and the metal on Wednesday made the most of a retreat in the currency to a near three-week low.

The greenback slipped further below  the 100-mark against the world's major currencies on the back of dovish comments from the US Federal Reserve and doubts about the strength of the US economy leading to a diminished likelihood of an early rate increase.

At just  over 97.1, the world's reserve currency is still up 21.3% over the past year and within shouting distance of 12-year highs. That compares to a record low of 71.6 in April of 2008 and a record high of 164.72 in February 1985 when the price of gold bottomed at $284.25 an ounce.

Platts News on Wednesday quotes from a research note by Anglo-Hong Kong bank HSBC expressing "cautious optimism" about the gold price outlook for 2015. The bank which has extensive bullion dealing are now predicting a trading range of $1,120 – $1,305 with an average price of $1,234 in 2015:

"The possibility that deflationary pressures could bring on negative rates in some economies helps reaffirm our cautiously optimistic view on gold," head analyst James Steel said.

"The likelihood that the dollar rally may be near ending as suggested by HSBC's currency research team is another possible reason supporting modestly higher gold prices," the analyst said.

Fundamentals factors are also supportive of a stronger gold price and the precious metal is not "entirely hostage" to monetary developments says HSBC. Low prices are discouraging scrap supply and the slump below $1,150 "may be encouraging greater demand from price sensitive emerging market buyers, notably, but not exclusively, in India and China."