BAML Sees Gold Prices Averaging 2018 $1,357; Look For $1,400 In Q4
(Kitco News)- Although theU.S. dollar has room to move higher in the next quarter, there are a number of difficultheadwinds that could drive gold prices higher later in the year, according tothe latest research from Bank of America Merrill Lynch (BAML).
In a reportMonday, the investment bank said it has increased its gold forecast for theyear. The analysts now see the yellow metal averaging around $1,357 an ounce in2018, up 2.4% from their previous forecast.
The bank islooking for gold to break through its current trading channel and push to$1,400 an ounce by the fourth quarter. Analysts are also optimistic on silver as they see prices averaging above $17 an ounce this year, pushing to $17.50 anounce by the fourth quarter.
The firm’s updatedgold outlook comes as prices have managed to bounce off a nine-week low. Themetal has been under significant pressure, while the U.S. dollar has seen asurge in momentum. The U.S. dollar index is currently trading at 91.86, itshighest level since January. June gold futures were last at $1,317.20 an ounce,down 0.47% on the day.
The biggestfactor behind the firm’s updated bullish forecast is renewed weakness in theU.S. dollar, which will struggle under the weight of the country’s growingdeficit.
The analysts saidthat although the U.S. dollar will get some support from government fiscalstimulus measures, including historic tax cuts that came into effect inJanuary, there is a lot of uncertainty down the road.
“Thefiscal stimulus is not fully funded and the budget deficit could be increasingto 5% according to our colleagues in the economics team,” the analysts said.“This suggests that the cost of providing short-term stimulus is high. Whilethe relationship between the US currency and the deficit is often somewhattenuous, a bigger fiscal shortfall ultimately often puts pressure on USD, whichin turn is supportive for gold.”
BAML is also positive on gold due to risinginflation pressures. The report explained that rising inflation is pushing bondyields higher, which in turn is creating volatility in equity markets, makinggold an attractive safe-haven asset.
“Concernsover increases in general price levels and, in turn, higher nominal rates havehad a strong impact in equity markets in recent weeks. This dynamic isimportant for gold because cross-asset volatility is supportive for the yellowmetal,” the analysts said.
By Neils ChristensenFor Kitco News
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