Gold Outlook 2019 –
Higher Gold Prices Ahead
Gold prices have declined so far this year. But 2019 and 2020 should be positive again because analysts at ABN AMRO expect a lower dollar, lower US Treasury yields, a recovery of the Chinese yuan and higher jewellery demand. Speculators are expected to cut their substantial short positions and gold prices should rise to above the 200-day moving average. We keep our year-end target for 2019 at USD 1,400 per ounce forecasts Georgette Boele, ABN AMRO Group Economics.
So far this year, gold prices have weakened by close to 5%. First, a looming trade war between the US and China has weighed on prices. Second, the recovery of the US dollar, higher US Treasury yields and Fed rate hikes haven been negative for gold prices. Third, concerns about the strength of the Chinese economy (also reflected by a weaker Chinese yuan and a lower Indian rupee) have resulted in a less favourable gold demand outlook. As a result, prices have declined. Here’s what Boele, Coordinator of Currency and Precious Metals Strategy, ABN AMRO expects going forward.
We expect higher gold prices in 2019 and 2020. First, since the Chinese yuan has had more room to move, the relationship with gold has become stronger. This is because China is a crucial consumer of gold. When China allows the yuan to decline, investors become concerned about the state of the Chinese economy. As a result they are also more negative about the outlook for gold demand. Chinese authorities have taken measures to stimulate the economy and to shield its economy from the (potential) negative effects stemming from US import tariffs. Since April, the yuan has been allowed to weaken by around 10% versus the US dollar. This limits the impact of the import tariffs on the Chinese economy. However, Chinese authorities are very cautious about letting the currency weaken beyond 7.00 versus the US dollar, as the risk is quite high that they would lose control over their currency. A weakening of the Chinese yuan beyond 7 versus the US dollar could spur speculation of capital outflows and they would like to avoid that, at least for now. Against that background, we expect that the Chinese yuan will recover in 2019. This should calm investors and improve investor sentiment towards gold.
However, if gold prices in local currency terms rise too fast than this could dampen gold investment and gold jewellery demand. For 2019 we expect gold prices in Chinese yuan and in Indian rupee to rise. But both will not increase to the highs seen in 2012 (in our view). In addition we expect jewellery demand to pick up in China and the US.
We are of the view that the US dollar and US Treasury yields have peaked. We also expect that US economic growth will peak this quarter. During the next two years, we expect lower US economic growth and lower 2y and 10y US Treasury yields. We expect the Fed to hike in December 2018 and one more time in 2019, some time during the first half. Going forward, the 2y US Treasury yields will probably rise in tandem with inflation expectations. So real yields will likely not rise. All these factors support our view that the US dollar has peaked and will weaken in 2019 and 2020. Therefore, we expect gold prices to rally in 2019.
The latest positioning data from the futures market show that there are extremely large speculative short positions in gold. Speculators are neutral-positioned in gold. This shows that speculators have little faith in the upside potential for gold prices. There is always the possibility that prices could go lower. But we think the risk reward for entering long gold positions is quite attractive. If our base scenario as described above plays out, it is likely that gold prices will rise in the coming two years on the back of a cut-back in speculative short positions, especially if gold prices would rise to above the 200-day moving average (just below USD 1,260 per ounce at the time of writing).
Gold Price Forecasts: For 2019, gold is forecast to reach a high of $1,375 by the 4th quarter of 2019 and average $1,325 for the year. For 2020, we forecast gold to reach a high of $1,488 in the 4th quarter of 2020 and average $14.50 for 2020.
GOLD STOCK NEWS
NOTE: Gold Stock News does not itself endorse or guarantee
Gold Stock News is published by
Website Designed & Maintained by Gemini Communications
PLEASE READ DISCLAIMER