Gold hits $1,200 as Bank of America calls bottom, sees $1,250 by years end

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Gold kicked off Monday with a massive run toward the $1,200 level, hitting eight-month highs as the U.S. stock market lost more ground in early trading. Lunar New Year celebrations in China and much of the rest of Asia no doubt also helped drive the price higher.

After a 5% gain last week, the yellow metal jumped about 2.3% to hit $1,200, its highest level since June and biggest one-day gain in two months. Its now up more than 12% for the year. Silver followed golds lead, reclaiming its bullish 200-day moving average and hitting $15.43, its highest price since Nov. 3. Meanwhile, the Dow Jones was down more than 350 points early on.

Compelling reasons to own gold: Golds momentum seems so strong at the moment that Bank of America Merrill Lynchs year-end forecast might be at risk of erring on the cautious side. Where does BoAML see the prices headed? About $1,250, strategist Michael Widmer told CNBC, citing low oil prices, a weakening dollar, and rising market volatility. Weve said that for quite awhile, actually, so for us, this was always the year that gold would bottom. What the gold market is reassessing at the moment is whether the overall global growth picture is lower, potential GDP growth pretty much everywhere has started to change, and whether that makes a more compelling case to actually own gold. Its not a massive bull market, but its a bottoming out. It is quite a change in a market that has actually been in a protracted bear market for years now.

Another major firm, Julius Baer, has also canceled its negative outlook for gold. Due to prevailing risk aversion in financial markets and mounting global growth risks, a bearish outlook on gold is not warranted anymore, analyst Carsten Menke said Monday. We have turned neutral and believe that investors should use gold as insurance in their portfolios.

CEO sees even recession odds: Although rising gold prices are often associated with rising inflation, bullion also can gain in periods of deflation. The gold trade is signaling a retreat in global inflation, Janney Montgomery Scott strategist Mark Luschini told CNBC. In times of economic stress … gold acts as a store of value.

Not only is growth slowing across the world, but the U.S. economy also seems to be losing steam, as evidenced by Fridays employment report, which saw the creation of just 151,000 jobs in January. One model from JPMorgan sees the risk of recession in the U.S. rising.

Were in a very confused state as far as understanding the global economy with very mixed messages coming from different sectors around the world, RandGold Resources CEO Mark Bristow said. Its an interesting time and thats always good for gold when people are unsure about the future. Bristow himself is predicting an even chance of recession. The whole world is in a situation where 2016 is going to be a year of wealth preservation rather than creation.

Fed could be forced to reverse: With Treasury yields continuing to sink amid uncertainty, all eyes are awaiting Federal Reserve chief Janet Yellens scheduled testimony before Congress on Wednesday and Thursday for clues on whether the central bank will slow or back off its rate-hiking policy begun in December. A policy reversal would be an acknowledgment of growing concerns about the global economy.

We see the gold price as being highly correlated with real yields, and so ultimately for gold to continue to rally we need to see a change in course for Fed policy this year, Johanna Kyrklund of Schroders told CNBC. But if they do that, it will probably be a very negative environment for growth and for markets, and so I think gold for that reason is attracting interest as a hedge in peoples portfolios, and I think thats whats pushing up the price.

The struggling stock market, combined with Chinas economic problems and the collapsing oil market, are becoming too large for the Fed to ignore. Yellen and her crew might still have their heads in the sand when it comes to the problems the world is facing, but the rising price of gold is telling us that everyone else seems to be waking up to this stark new reality.