TDS Looks For $1,300/Oz Gold Prices By End Of 2019
(Kitco News) -Gold prices may remain under pressure in the near term but are likely to rally intoyear-end and 2019 with the help of an eventually softening U.S. dollar and manyother factors, says TD Securities.
“Weforecast the yellow metal to average $1,225/oz in the last three months of2018, with prices moving into the $1,300s by the end of 2019,” the Canadianbank said in a research note on Monday.
Theprecious metal, which has been on the defensive for much of 2018, weakened atthe end of last week after the Federal Open Market Committee not only hikedU.S. interest rates by another 25 basis points but continued to hint at moretightening to come. Additionally, Italian budget uncertainty left the eurounder pressure against the U.S. dollar. Precious metals tend to move inverselyto the U.S. currency.
Spotgold fell as far as $1,181.05 an ounce last week, its lowest level since mid-August.
TDSanalysts said they expect choppy range-bound trading between $1,180 and 1,215per ounce in the near term.
“Indeed,fiscal stimulus and worries that rates are set to rise ever closer to the dots[based on the Fed’s so-called dot-plot] will increase the opportunity costs ofholding zero-yielding assets,” TDS said. “Until other Western central banksmeaningfully tighten their policy, the U.S. dollar's strength relative to Westernand EM [emerging-market] currencies is quite likely to remain a significantheadwind that will suppress positioning for gold bugs. As such, we don’t expectmuch sustainable upside in the near term, and expect prices to remain underpressure for now.”
Buteventually, that should change, TDS said. The key will be a reversal of U.S.dollar strength.
“Atthe same time, considering that exposure is extremely skewed toward shortpositioning [in gold], there is a very strong case to be made for a robustrally as factors currently depressing the market, such as rate expectations,the USD and weak emerging markets, eventually reverse course and trigger a boutof short covering,” TDS said.
Thebank projected the dollar will start weakening “materially” in 2019 and thatreal U.S. 10-year yields are unlikely to rise much above 1% as trade worriesand diminishing returns on U.S. fiscal stimulus moderate optimism.
“Thefast pace of U.S. debt growth even at the peak of the cycle, equity-marketcorrection risk and emerging primary physical deficits should also serve assupport,” TDS said.
Goldshould top $1,300 until the final three months of 2019, TDS said.
“Butwe do believe that it will be a choppy road higher due to the recent USD jumphigher, and ongoing trade issues that are depressing the Chinese currency andgrowth expectations,” TDS said. “Ambiguity surrounding how hawkish the U.S.central bank will be with over the next twelve months will create volatilityand may drive prices lower still.”
By Allen SykoraFor Kitco News
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