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Goldman raises gold forecast while retaining bearish outlook

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Goldman Sachs Group Inc raised its forecasts for bullionprices as it scaled back expectations of US Federal Reserve rate hikes over the next year, while remaining bearish on the metal's prospects.

[NEW YORK] Goldman Sachs Group Inc raised its forecasts for bullionprices as it scaled back expectations of US Federal Reserve rate hikes over the next year, while remaining bearish on the metal's prospects.

The bank raised its three, six and 12-month forecasts to US$1,200, US$1,180, and US$1,150 an ounce respectively, from US$1,100, US$1,050 and US$1,000, analysts including Jeffrey Currie and Max Layton wrote in a report dated May 10. Gold currently trades around US$1,270. The revision was made after Goldman's economists cut their prediction for US interest rate increases over the next 12 months to 50 basis points from 100 basis points.

"While the upside risks to gold pricing appear relatively limited from here, we see a number of catalysts for gold prices to moderate, including a more hawkish Fed and ultimately US policy rate divergence, corresponding with gradual dollar appreciation over the next 3-12 months," the analysts said. Goldman sees the next rate hike most likely in September but perhaps as early as July.

Gold has surged 20 per cent this year and vaulted over US$1,300 last week as the outlook weakened for higher borrowing costs in the US on concern about global growth, and as lending rates in Europe and Japan fell below zero. Holdings in bullion- backed exchange traded funds are at their highest since December 2013.

Gold's rally has prompted some bears, including ABN Amro Group NV's Georgette Boele, to reverse their outlooks, while BNP Paribas SA said last month that the metal may advance to as much as US$1,400 over the next year.

BLOOMBERG