Gold prices to push higher as Fed faces reality of lower rates – BNP Paribas

Editor’s Notice: In an up to date remark to Kitco Information, Harry Tchilinguirian mentioned that as of Oct. 9, after his commentary was revealed, BNP Paribas expects the Federal Reserve to decrease curiosity ratses on the finish of the month, adopted by three extra price cuts.

(Kitco News) – Though the Fed has been reluctant to acknowledge that it has launched into a brand new easing cycle, one market analyst mentioned that the central financial institution gained’t be capable to ignore the truth for for much longer.

In a commentary for the World Gold Council, Harry Tchilinguirian, head of commodity analysis at BNP Paribas, reiterated his name for decrease rates of interest via the primary half of 2020.

“That may imply that, by the tip of this cycle, the higher sure on the Fed fund’s charges can be 1.25%. Provided that nominal yields are inclined to fall with Fed cuts, actual charges might transfer and keep in destructive territory, elevating the enchantment of holding gold so long as financial uncertainty persists,” Tchilinguirian mentioned within the commentary. “Ought to the Fed show extra aggressive than we assume, gold is more likely to transfer above our forecast for that interval.”

Though falling bond yields are anticipated to supply assist for gold, Tchilinguirian mentioned he sees a resilient energy within the U.S. greenback as a headwind for the dear steel.

Historically, financial coverage easing is destructive for the U.S. greenback; nevertheless, Tchilinguirian defined that there are different mitigating circumstances together with new easing measure from the European Central financial institution, that are anticipated to weigh on the euro. On the identical time, the U.S. greenback might proceed to see safe-haven curiosity within the midst of the continuing commerce warfare between the U.S. and China.

“With these commerce variations more likely to take a very long time to resolve, we advise that the US greenback is extra more likely to be a mitigating than a supporting issue for gold. Over time, we consider that demand for gold can be motivated primarily by a low price atmosphere,” mentioned Tchilinguirian.

However, gold can be extra than simply an insurance coverage play. Tchilinguirian mentioned that he expects rising inflation strain to be the following issue to drive gold costs greater after the Federal Reserve stops easing rates of interest within the second half of subsequent yr.

“For now, nevertheless, curiosity in gold is evident from the choices market. [As of Oct. 1] the market was pricing out of the cash gold name choices a lot above their equal put choices, reflecting sentiment that gold costs have extra upside than draw back danger,” he mentioned.

Tchilinguirian feedback for the WGC come a month after he up to date his value forecasts for gold and silver. Presently the French financial institution expects gold costs to push via $1,600 within the first quarter of 2020 and common the yr at $1,560 an oz.

On Wednesday, gold costs remained beneath final month’s lows however continued to carry crucial assist above $1,500 an oz. December gold futures final traded at $1,511.80 an oz, up 0.52% on the day.

Gold costs have discovered new assist after Federal Reserve Chair Jerome Powell mentioned at an occasion in Denver Colorado on Tuesday that the central financial institution will broaden its stability sheet, however the progress ought to “under no circumstances be confused with the large-scale asset buy applications.”

Powell was additionally non-committal on the longer term course of rates of interest forward of the central financial institution’s financial coverage assembly on the finish of the month.

“Wanting forward, coverage shouldn’t be on a preset course,” he mentioned. “The subsequent FOMC assembly is a number of weeks away, and we can be rigorously monitoring incoming info.”