Gold To Climb By Year-End, But Expect Fierce Resistance - Capital Economics
(Kitco News) - The end of 2018 will see gold prices climb slightly higher, but several macroeconomic factors still weighdown on demand for the precious metal, according to a recent research report byCapital Economics.
Weaker economic growth in some ofthe largest consumer markets will lead to lower consumer demand, the reportsaid. This, along with a stronger U.S. dollar, will continue to add downwardpressure on gold prices.
“Traditionally, this source ofdemand tends to be relatively price-sensitive. Given the recent falls in theprice of gold in U.S. dollar terms, one could assume that physical demand willbounce back. However, we don’t think that this will happen,” the report said.
Consumer demand is an importantindicator to consider when assessing the medium-term outlook for gold prices,said analysts at Capital Economics, while short-term price fluctuations can beinfluenced by investor sentiment.
“Consumer demand for gold, whichincludes jewelry and bars and coins, accounts for over two-thirds of total goldconsumption. India and China are by far the largest consumers, accounting for40% of the total, followed by the U.S., Germany and Turkey,” the report said.
The report cites three mainreasons for lackluster consumer demand in the medium term.
First, due to the U.S. dollarappreciating against major currencies, gold has risen in local-currency termsin some countries, and this has weighed down local consumer demand.
Second, economic growth in Chinaand Turkey is expected to slow. The economic slowdown in two major consumergold markets will have negative implications for gold demand.
Finally, in the world’s secondmost populous country, a below-average monsoon will weigh on India’ gold demanddespite strong economic growth, the report said.
Because of these headwinds fromconsumer demand, Capital Economics sees risks to the short-term forecast forgold prices, which analysts expect to rise over the coming months due to stronginvestment demand for safe havens and inflation hedges.
“Overall, we doubt that consumerdemand for gold will provide much support to prices in the remainder of theyear. If anything, it might actually add to the downward pressure on prices,”the report said.
By David LinFor Kitco News
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