Gold prices are up 18% year-to-date, beating other asset classes such as high yield and investment grade bonds as well as major stock indexes, he said in a research report.
“We project gold prices to trend sideways in 2016 within a broad choppy range of $1170 to $1320. In the near-term, the unusually weak US payrolls outcome in May has lifted the selling pressure on gold from hawkish FOMC minutes."
"Gold remains closely linked to changes in Fed rate pricing and the US dollar,” he said.
It is hard to get excited on gold’s upside potential over the medium-term, and it is not so straightforward to turn significantly bullish on gold at current levels unless the Fed switches course to actively join the European Central Bank and the Bank of Japan in pursuing easing policy, he said.
Another major concern for gold bulls is the lack of physical demand from the metal's biggest markets, China and India, he said.
“Latest gold import data by India and China continues to suggest weaker appetite in gold among consumers this year, and this underlying subdued interest implies that lower prices would be required to reinstate demand.”
On the flipside, the risk of an episodic burst of financial volatility appears elevated and this should support gold resilience, he said.
“With the S&P 500 close to all-time highs, not-so-cheap valuations and mediocre global growth, equities will likely trade in a wide range with heightened volatility."
He cited uninspiring economic data from China, the Brexit vote, possible policy missteps by the US Fed and the outcome of the US election as volatility drivers.
"We believe gold will benefit as a diversifier in a portfolio and offers option value against the risk of stock market sell-off.”
The gold index has beten the S&P 500 this year, but Bank of Singapore believes that's no reason to become a gold bull.