Merrill Lynch Forecasts For Gold Raised

Mineweb reports that Merill Lynch has raised its forecast for average gold prices from $1110/oz in this year, $1179/oz in 2011 and $1109/oz in 2012, to $1,200, $1,350 and $1,400 respectively. The main reason given was increasing investor demand, as prompted in part by recent hedging against sovereign risk. Also, Asian demand is strong and (Merrill believes) will continue to be so.

"Our positive view on gold and silver prices is heavily influenced by the current macroeconomic environment and we believe that the following three developments will have a significant impact on these metals:

• "Central banks have eased monetary policy reflected in sharp rises of money supply;
• "Government debt has soared to make up for the private sector consumption short-fall;
• "Potential GDP growth rates have come under pressure."...

"It is also worth noting that investment demand in emerging markets like China has remained at very high levels," the analysts said. "This is partially influenced by growing real incomes, the launch of gold investment products and some apprehension over the value of other investment alternatives, such as equity and property."

Also mentioned is the risk that strapped governments will try to ease their fiscal burdens by inflating (or by lobbying for more inflation.)