The world’s fourth-largest bank HSBC lately stated that they are predicting the gold prices to increase by 10% by year-end and will wind up the year worth approximately US $1,225/ounce. They believe that commentators such as Goldman Sachs and others are wrong to state that the price of gold will fall with an increase in interest rates. The bank’s data analysis revealed that in the last few times when interest rates had been raised by the Federal Reserve, the price of gold increased rather than decreased. It is expected that later this year Federal Reserve will raise rates for the very first time after 2006 despite trade slowdown and devaluation.
Goldman’s argument is gold does not pay any dividends or interest, so with the rise in interest rates, investors are likely to shift away from this yellow metal. During the late 1970s, the price of gold rose eight-fold with extremely high-interest rates. This is because this metal is indeed a hedge against price rise and the increasing rates of interest are an indication that price rise is on the way or is a problem already. But more than inflation it is deflation that is a matter of concern of the moment, according to HSBC.