Mumbai: Gold is set to advance by as much as 15% before the end of next year as the Federal Reserve goes slow on increasing interest rates and the dollar remains subdued, buoying bullion demand, according to Templeton Emerging Markets Group.

“The Fed is going to increase the rates by a little bit but not excessively and there is no guarantee that a rise in interest rates will put people off,” executive chairman Mark Mobius said in an interview at a Bloomberg event in Mumbai. “A lot will depend on the real rates.”

Bullion has rallied 19% in 2016 as concern over the health of the global economy, loose monetary policies and the UK’s vote to leave the European Union fanned demand. After raising rates last December for the first time in almost a decade, Fed policy makers have stood pat on borrowing costs in the six meetings since. While the dollar gained to the highest since March on Friday on speculation that rates may soon climb, it remains lower this year.

‘Not that strong’

“The U.S. dollar is not that strong and may even decline,” said Mobius, who also highlighted prospects for increased central bank buying of bullion. “So if that happens, gold gets more expensive.”

David Fuller's view

I have always liked Mark Mobius, a very knowledgeable and calm optimist who remains dapper at the age of 80.  I would not want his dry cleaning bill for those pale suits but I am sure he can afford it.

During their recovery phases precious metals often outperform during 4Q and 1Q, not least on Chinese and Indian buying.  I am not sure how much of a factor that might be in the current, uncertain environment.  Nevertheless, I would not rule out the possibility and they should at least see further recoveries from the current oversold positions.