J.P. Morgan said on Monday it expects spot gold prices to climb to $2,500 an ounce or higher by year-end, on very high volatility, following the downgrade of US debt. "Before the downgrade, our view was that cash gold could average $1,800 per ounce by year end. This view will likely now prove to be too conservative," analysts Colin Fenton and Jonah Waxman said in a note to clients.
Spot gold was up 2.8 percent at $1,708.59 an ounce by 12:11 pm EDT (1611 GMT), having hit a record $1,715.01 earlier and marking all-time highs against sterling and euros. While the analysts expect most commodity markets to convulse lower after the downgrade, those geared to the growth of emerging markets, infrastructure investment and inflation could stabilise relatively faster and outperform markets more anchored to developed economies and consumption.
"The macro backdrop better parallels mid-cycle pauses in 1995 and 1998, rather than end cycle 1981 or 2008, though the risk of a worse outcome is rising and should not be ignored," they said. The analysts said they would want to own a basket of Brent crude oil, gasoil, gold, raw sugar, copper, corn, and wheat in the near-term, while underweighting or shorting a basket of WTI crude oil, RBOB gasoline, aluminium, zinc, and North American natural gas.
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