Gold may average 21 percent higher this year as a weakening dollar will increase the appeal of bullion as an alternate investment, metals trading firm ScotiaMocatta said.
Gold for immediate delivery may average US$540 an ounce this year, the report dated Jan. 10 said, compared with US$445.22 last year.
Gold for immediate delivery has surged 5.7 percent this year, touching US$551.65 on Jan. 9, the highest since Jan. 23, 1981, when it touched US$553. Investors have been busy buying bullion to diversify from stocks, bonds and currencies and to hedge against possible inflation.
In Asian trading, gold fell on investor concern a rally to a near 25-year high this week might be overdone.
"This is considered as a consolidation patch," Kishore Narne, head of commodities of Mumbai-based Anand Rathi Commodities. "Basically people were waiting for gold to touch the psychological US$550 mark to book part profit."
The US dollar has fallen 8.4 percent against the euro and 10 percent against the yen in the past 12 months, reducing the appeal of other US assets such as stocks and bonds.
"Gold has found its own following as a true currency and a currency that has outperformed the dollar as well," the ScotiaMocatta report said. "This suggests that if the dollar starts to go into decline again for macro-economic reasons, then it is likely that gold will continue to appreciate against the dollar as investors switch out of the dollar and into gold."
Gold rose by 90 percent in the five years to the end of last year, while the Standard & Poor's 500 Index returned 2.7 percent with dividends reinvested.
An index of Treasuries maturing in two years or more returned about 30 percent including interest re-invested, Merrill Lynch & Co indexes show.
Investors are switching to gold from the US dollar over concern about the US trade and budget deficit. The US trade deficit is headed for an all-time high of more than US$700 billion for last year. It recorded a budget deficit of US$81.3 billion in November, a record for the month.
A falling US dollar makes US-currency denominated gold cheaper to purchase for investors using the yen and euro.
The precious metal may touch US$580 an ounce by the end of the year, ScotiaMocatta said.
"Every market has a cycle," said Alastair McIntyre, head of precious metals marketing at Scotia Mocatta based in Hong Kong, by telephone today.
"Gold and commodities are participating in an uptrend and nothing in the supply-demand picture suggests that the trend is changing," he added.
In a separate report today, RBC Capital Markets analysts Stephen Walker and Michael Curran said gold should reach US$600 an ounce this year rather than next year, as earlier forecast, as central banks such as those of Russia, South Africa and Argentina have already been buying up the precious metal and others such as China may follow suit.
At some point, the US dollar will weaken enough to attract investors back to US dollar-assets and investment inflows would ease concerns about the current account deficit, McIntyre added.
For now, "central banks are buying gold and Asian central banks are considering buying more gold, and funds are buying. The momentum is there," he said.