(Kitco News) One bearish outlook on gold this 12 months comes from Capital Economics, which is projecting gold costs to finish the 12 months at $1,400 an oz — greater than $200 decrease than final week’s seven year-high.
“Gold will most likely obtain some help from central financial institution purchases, a lot of whom want to diversify their reserves away from U.S. greenback property, however, in our view, this would possibly not cease gold from falling to US$1,400 per ounce by end-2020. This compares with a consensus forecast of $1,512,” wrote Capital Economics commodities economist Alexander Kozul-Wright on Tuesday.
On the time of writing, February Comex gold futures have been final buying and selling at $1,545.40, down 0.34% on the day. Final week, gold briefly hit a stage above $1,611, an oz on rising geopolitical tensions between the U.S. and Iran.
Capital Economics’ bearish forecast is predicated on its view of world financial progress, U.S. greenback and bodily demand for the yellow steel.
“Whereas the worth of gold stays elevated at current, we expect it is solely a matter of time earlier than it begins to ease again. Subdued gold imports in China and India and softer safe-haven demand ought to depress the worth. In the meantime, we anticipate that some U.S. greenback appreciation will even weigh on gold in 2020,” Kozul-Wright stated.
The markets will proceed to see “the lagged results of unfastened financial coverage,” which ought to assist with the general international financial restoration. “Fears of an financial recession would fade, lifting investor sentiment and curbing the demand for gold-linked property,” the economist described.
Additionally, buyers ought to see a decline within the quantity of negative-yielding debt, which might additionally restrict gold’s enchantment, Kozul-Wright identified.
On prime of that, continued power within the U.S. greenback ought to weigh on gold costs this 12 months, added the economist.
“In contrast to different main central banks, we do not anticipate the Fed to chop charges in 2020, which ought to elevate the relative worth of the buck. We additionally suppose that the U.S. economic system will profit from a pick-up in progress within the second quarter, offering extra demand for the greenback. As such, gold costs will most likely stay elevated within the close to time period, earlier than trending down within the second half of the 12 months,” he wrote.
The final pillar of the bearish outlook is weaker bodily demand coming from India and China — the world’s two prime gold customers. “We … suspect that Chinese language financial progress is ready for a small leg-down this 12 months, including an extra headwind to gold imports. In the meantime, excessive import duties and shifting client preferences away from gold will weigh on purchases in India,” Kozul-Wright stated.
On the finish of 2018, Capital Economics was bullish on the yellow metal, projecting for costs to surge to $1,300 in 2019 after which to $1,400 in 2020.
“Whereas we have been upbeat on the outlook for gold in 2019, even we have been stunned by the velocity and scale of final 12 months’s worth rally,” Kozul-Wright stated.
Final 12 months’s rally was pushed by recession fears, international financial coverage easing, and rising geopolitical tensions, highlighted Kozul-Wright.
“Mounting fears of a world financial recession fueled gold’s highest annual worth rise because the euro-zone debt disaster in 2010. As well as, financial loosening by the world’s main central banks lowered the chance value of holding valuable metals. Extra not too long ago, heightened geopolitical tensions within the Center East additionally bolstered demand for gold,” he stated.
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