(Kitco News) - BNP Paribas has raised its average 2011 gold-price forecast to $1,500 an ounce and looks for the metal to average $1,600 in 2012, the bank said in a research report issued Tuesday.

Gold hit a record $1,424 an ounce on Nov. 9 before retrenching and is now rising again.

“Interest in the metal is broad-based,” BNP Paribas said. The bank cited safe-haven flows prompted by euro-zone debt worries and also noted the official sector “continues to be an active buyer of gold.” Meanwhile, the jewelry sector entered its seasonally strong quarter in October. Furthermore, economic growth, particularly in emerging markets, is supportive of industrial demand for gold, said BNP Paribas.

“Despite the recent price correction, market sentiment remains positive for
gold over a two-year horizon,” BNP said. “A number of factors are supportive of an upward trend in price, including increasing uncertainty regarding the role of
the USD (U.S. dollar) within the international monetary system, concerns related to the stability of peripheral euro-zone countries and growing inflationary pressures in Asian emerging markets, particularly China.”

BNP Paribas listed a number of factors creating a “favorable” environment for gold, starting with increased liquidity. Early this month, the Federal Reserve announced a second round of quantitative easing, in which the central bank will buy Treasury securities in a bid to push down long-term interest rates. This came against a backdrop of “already loose global monetary policy,” BNP said.

The bank cited a generally weaker dollar trend (despite recent greenback gains against the euro), as well as rising inflationary expectations as positive factors for gold.

“Lifting inflation expectations is one of the main objectives of the Federal Reserve,” BNP Paribas said. “This is because the Fed appears uncomfortable with declining price pressures in the U.S. economy once energy and food prices are removed.”

BNP also pointed to some “uncertainty” surrounding the international monetary system due to pronounced swings in the value of the dollar, which has been the system’s cornerstone since World War II.

“Episodes of broad-based depreciation of the USD, the global reserve currency, are making investors and foreign governments alike nervous,” BNP said. “Their concerns have been heightened as a large U.S. fiscal deficit and debt position have come to be accompanied by very loose monetary policy and the adoption of unconventional measures in the form of quantitative easing to tackle domestic issues of high unemployment and low price pressures.”

Thus, the role of the dollar as a reserve currency has been increasingly questioned, although for now, there does not appear to be another readily available fiat currency as a substitute, BNP said.

“While gold’s attributes make it an attractive alternative, the current size of the market and the growth rate of supply may prove to be a limiting factor to a return to a full gold standard,” BNP said. “So while central-bank buying interest in gold is likely to continue, purchases will likely be confined to maintaining a share of gold in countries’ reserves, the size of the gold market being too small for a full conversion.”