LONDON (Reuters) - Gold could rally to "at least" $1,400 an ounce next year as investors seek refuge from further uncertainty in the global economy and beleaguered financial system, Capital Economics said in a report on Thursday.
The economic research consultancy said while it remains unconvinced by some arguments for gold, the threat of further instability in the financial system was likely to spark fresh gains in the precious metal, currently near record highs.
"Fears of runaway inflation or a dollar collapse, which underpin some of the most bullish forecasts for gold, remain exaggerated," it said.
"Nonetheless, prices should continue to be supported by strong demand for a safe haven from other potential economic and financial shocks, such as a U.S.-China trade war and the break-up of EMU."
The company also lifted its year-end gold forecast to $1,200 an ounce, indicating a slight retreat from the precious metal's current $1,290 an ounce on expected dollar strength. Prices hit a record $1,296.10 an ounce on Wednesday.
Capital Economics remained relatively cool towards gold earlier this year as some commentators started to lift their forecasts for bullion prices, predicting a return to $900 an ounce in a report released in late March.
However, it said with the prospect of further quantitative easing threatening to erode the value of paper currencies, the precious metal is likely to stay in strong demand.
"With official interest rates more likely to remain near zero in the major economies for the foreseeable future (minimising the opportunity cost of holding gold) and additional QE more likely than an early exit, it is hard to see anything on the horizon to change positive sentiment towards gold," it said.
(Reporting by Jan Harvey; Editing by Sue Thomas)
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