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Metals Focus sees gold climbing to $1 450/oz this year

4th April 2018

By: Simone Liedtke

Creamer Media Social Media Editor & Senior Writer

     

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JOHANNESBURG (miningweekly.com) – Although facing a number of challenges, global market conditions are expected to become positive for gold this year, with the precious metal potentially testing  $1 450/oz before the end of 2018, consultancy Metals Focus says in its latest gold market report.

The ‘Gold Focus 2018’ report, which was released on Wednesday, states that prices will benefit from investor rotation into gold, owing to equity market corrections and a low yield backdrop.

Following a positive sentiment in December, the report states that gold has moved sideways in a tight range since the beginning of 2018, as markets have lacked decisive triggers. Such range-bound conditions are forecast to also persist over the second quarter.

The consultancy notes that many of the headwinds that gold faced in 2017 have continued into 2018, and lists investors’ continued preference for equities, despite the volatility spikes that the industry has seen at times this year, together with rising bond yields as headwinds for gold prices. The recent resilience of the US dollar and ongoing rate hikes by the Fed are also negative for gold.

However, Metals Focus expects that conditions will become positive for the metal as the year progresses.

“Our view that prices will rise is based on our belief that the dollar will resume its secular downtrend. Real short-term rates will also stay negative for some time to come, while twin deficits in the US [fiscal and trade] will lower investor appetite for bonds and the yield curve may flatten further,” Metals Focus director Nikos Kavalis commented on Wednesday.

This, he added, coupled with the potential for a correction in equities, would benefit gold and although US interest rate increases might act as a headwind, their impact on the gold price would be limited as they were largely priced in.

The report notes that macroeconomic tail-risks will ensure that the gold price still carries risk premium, even if they do not materialise. Among these, are rising trade-protectionism and the possibility of outright trade wars.

Geopolitical risks have dissipated given the recent thawing in US-North Korea relationships, but the report highlights that should the US pull out of the Iran nuclear deal, it could unsettle markets.

In terms of gold’s own fundamentals, the consultancy expects jewellery fabrication to touch a three-year high in 2018, backed by growth in India and China. Physical investment is expected to improve by 4%, while net official sector purchases are projected to decline marginally.

Gold mine supply, on the other hand, will mark a decade of growth, edging higher in 2018, albeit by just 0.1%, to a new peak.

Overall, Metals Focus believes that while the signs on global economic growth are broadly optimistic, the consensus is too exuberant as far as the medium term is concerned, with periods in the global market turmoil expected to continue emerging, while accompanied by spikes in volatility.

Meanwhile, given past synchronised rallies across different markets, the report states that there is significant scope for contagion.

“When, rather than if, equities correct, we will still be faced with depressed yields. At this point, investor rotation back into gold, even on a modest scale, should help take it to around $1 450 by year-end,” Kavalis added.

Gold is currently trading at about $1 344/oz.

Edited by Mariaan Webb
Creamer Media Senior Deputy Editor Online

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