The ongoing tussle between gold bulls and bears often boils down to a view on the outlook for US interest rates. If the Fed resumes its tightening soon as global risks fade, supporting the dollar, the gold price might reasonably be expected to fall back. In contrast, if the world economy and financial system is indeed heading for the rocks, an extended period of looser monetary policy and strong demand for safe havens should boost the precious metal further. However, we suspect that a new factor will also be increasingly important, namely the return of inflation. This would support our view that any correction in the gold price will be short-lived, and we reiterate our end-2016 forecast of $1,250 per ounce.
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