But soon enough the yellow metal will bottom and a new and furious rally will begin, taking gold above US$2,000 for the first time ever later this year, says Capital Economics.
“The most likely catalyst for a further surge in the gold price would be the start of new and much more dangerous phase of the crisis in the euro-zone, ultimately leading to the break-up of the single currency itself,” he said.
“We continue to expect further defaults not only in Greece but also elsewhere in the region, with at least one country abandoning the euro completely over the next two years.”
Gold closed Monday at roughly US$1650 an ounce, which is well below its peak near $1,900 per ounce last September.
Mr. Jessop said prices could fall as low as US$1,000 if the crisis in the euro-zone is past its worst and the U.S. Federal Reserve starts thinking about raising interest rates.
Profit-taking as investors look to offset losses elsewhere would further undermine gold prices, while slower global growth might dampen demand from China and India.
But Mr. Jessop believes gold will ultimately rebound from any short-term weakness on the potential demand for a safe haven from the economic and financial uncertainty caused by the break-up of the eurozone and associated defaults.
“This much has not changed,” he said “Accordingly, we now expect gold to rise to around $2,200 by the end of this year (our previous forecast was $2,400) before dropping back to $2,000 by the end of 2013.”
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