There is a saying in the markets and in the economy that nothing cures low prices like low prices. When the World Gold Council recently pointed out that the sell-off from highs would bring buyers in, it seemed perhaps self-serving. After all, they are very pro-gold. Now we have yet another call that lower gold prices are likely to bring in gold buyers.

A Credit Suisse report from its Precious Metals group issued on Friday showed that the consolidation in gold has actually provided a more attractive entry point. This was a commodity specific view for gold and silver, but the issue for gold is that Credit Suisse expects that the price of $1,200 per ounce should hold.

The report talked about rate hike expectations, economic data, the presidential election and more. Credit Suisse is sticking by its continued bullish view on gold — it reiterated $1,400 per ounce in 2017. Credit Suisse’s thesis continues to be driven by rates, uncertainty, wealth preservation, central banks and even mine supply.

Some price targets were tweaked in this call. Credit Suisse’s gold price forecast to $1,325 per ounce in the fourth quarter of 2016 and $1,450 per ounce in the first quarter of 2017 — from $1,500 per ounce.

Despite the recent pullback in gold to about $1,250, the firm sees the metal supported at $1,210, if the market prices in a 100% probability of a Federal Reserve rate hike in December. Still, Credit Suisse did say that it believes gold will see a rally once the December 14 Federal Open Market Committee meeting passes — or if global developments reduce the likelihood of another rate hike.

On the supply/demand front, Credit Suisse sees the deficits forecast to continue into 2017. The analysts noted a likely 144 tonne supply deficit in 2016, and they see the deficit rising to 211 tonnes in 2017. The 2016 deficit was weak jewelry demand, but the 2017 deficit expectation is expected to be from mine supplies and also from sustained investment demand from exchange traded funds and central banks, with a small rebound in gold jewelry demand. Recycled gold supply is price sensitive, and Credit Suisse forecasts a modest rise in 2017.

Credit Suisse said:

Since August the focus has shifted to near term drivers including an impending Fed rate hike on the back of stronger US data (market now pricing in a 68% probability of tightening by December), a strong USD and weaker GBP on a reiteration of Brexit on perhaps a faster timeline than was anticipated, and lastly a reduced likelihood of a Trump presidency based on recent polls. Gold futures appear to have driven the gold price sell off with 8.2Moz of outflows since their peak on July 5th. Meanwhile ETF holdings have continued to steadily increase, albeit at a slower pace than earlier in 2016.

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