Gold Faces Headwinds For Now, But To Rise In 2019 - Metals Focus
(Kitco News) - Gold may have a hard time making much forward tractionin the months ahead but at some point should gain upward momentum in 2019 asthe U.S. dollar loses some of its strength, said Metals Focus Wednesday.
The consultancy provided a summary from its reporttitled “Precious Metals Investment Focus 2018/2019,” which covers gold, silver,platinum and palladium. The report is being launched at a special event inLondon Wednesday night.
Professional investors have spent much of 2018 eithershunning precious metals or establishing bearish, or short positions, MetalsFocus said. This was the result of macroeconomic developments, with the U.S.dollar boosted by further U.S. monetary tightening and a growing consensus fora more hawkish Federal Reserve, as well as the U.S.-China trade war. Gold tendsto move inversely to the greenback.
“Buoyed by the windfall of the tax reform, the U.S.economy has continued to strengthen,” said Neil Meader, research andconsultancy manager at Metals Focus. “This fortified the already-bullishsentiment towards U.S. equities, discouraging interest in defensive assets likeprecious metals.”
Some of the headwinds for gold are likely to continue inthe coming months, including a resilient dollar, elevated bond yields andsubdued inflation in the industrialized world. Nevertheless, Metals Focus saidconditions will slowly turn more positive for gold in 2019.
“There are doubts whether U.S. dollar strength can besustained as the path for the Fed’s rate hikes is fairly clear and is alreadypriced in,” Meader said.
U.S. tax reform has also led to faster-than-expectedincreases in U.S. government debt, which was already high. There are alsoconcerns about debt elsewhere, including China. Meanwhile, a repeat of theEuropean debt crisis was described as unlikely, while expectations for monetarytightening by the European Central Bank in 2010 should support the euro, MetalsFocus said.
Metals Focus also looks for some gradual asset rotationfrom equities back into gold.
“Investors may believe that equities are overvalued but,in the absence of an obvious trigger and the fact the probability of each tailrisk is seen as low, there is no rush to jump ship,” Meader said.
Otherwise, support from gold’s supply/demandfundamentals appears limited, Metals Focus said. Mine production is forecast toincrease next year, although jewelry output is also seen rising. Metals Focussaid the structural surplus in the gold market is likely to remain comparableto this year.
Meanwhile, Metals Focus looks for silver to benefit froma recovery in gold, with the gold/silver ratio expected to fall slightly nextyear. Nevertheless, cautious sentiment toward base metals and gold will impactsilver. The silver market is likely to be in a structural surplus for the sixthstraight year, Metals Focus added.
The platinum market also is likely to remain in asurplus in 2019, with “ample” above-ground stocks, Metals Focus said. There arefew signs of large-scale cuts in mine production, while there are “seriousquestions” about sales of diesel-powered vehicles that require platinum forautomotive catalysts. Nevertheless, Metals Focus said platinum could benefitfrom its correlation with gold, with potential for short covering.
By contrast, palladium is expected to have a growingdeficit for the eighth straight year and may be the best-performingprecious metal in 2019, Metals Focus said. Because the market is small,however, any rally may be accompanied by high volatility.
“Despite successive records in recent years, risinggasoline car sales and tighter emissions limits point to even higher palladiumauto-catalyst offtake in the coming years,” Meader commented.
By Allen SykoraFor Kitco News
Follow @AllenSykora
asykora@kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication. |