BNP Paribas Raises Gold-Price Forecast But Sees New DowntrendBy Kitco News
Tuesday July 26, 2016 09:10
(Kitco News) - There is at least one more bear in the woods as analysts at BNP Paribas increase their gold-price forecast for 2016 but look for the price to trend lower through the rest of the year and 2017.
In an email response to Kitco News regarding the bank’s new forecast released late last week, Harry Tchilinguirian, global head of commodity markets strategy, said the strong performance during the first half of the year forced them to raise their base prices for 2016 and 2017, but “the path of least resistance is lower and not higher.”
In a report released late last week, the bank’s analysts said they now expect gold prices to average $1,245 an ounce, an increase of $285 from their previous 2016 forecast. At the same time the bank raised its 2017 forecast by $335 to $1,195 an ounce.
“We have rebased upwards our gold-price profile, but retained our negative bias in terms of trend…,” said Tchilinguirian and coauthor Gareth Lewis-Davies in the report.
The analysts noted that renewed safe-haven demand since the start of the year, due to factors such as Chinese growth concerns, the Brexit referendum and shifting interest-rate expectations, helped push gold to its highest level in more than two years in the first half of the year. However, looking ahead, they said there is less uncertainty to drive prices higher.
“While the market is not immune from new bouts of risk aversion, we contend that there remains uncertainty as to how much support can come gold’s way, given the choice investors have in other safe-haven destinations, not least, the dollar,” the analysts said.
Negative interest rates and shifting U.S. interest-rate expectations had also helped gold prices since the start of the year; however, the analysts also see this as a short-term driver of the yellow metal. The bank is expecting the Federal Reserve to raise interest rates by September, which could raise bond yields across the board, increasing gold’s opportunity costs.
While the Federal Reserve kicks off the first day of its two-day monetary policy meeting Tuesday, markets are currently pricing in a 49% chance that interest rates will move higher by the end of the year.
The analysts are also bearish on gold as global inflation expectations remain subdued.
“If anything, for some central banks such as the ECB, deflation concerns may be back on the agenda. If inflationary hopes are dashed, then some of the large increment in long gold exposure built year-to-date in ETFs or futures could partially unwind, putting downward pressure on price,” the analysts wrote.
Although the bank remains pessimistic on gold prices, the analysts abandoned their call for gold to break below $1,000 an ounce.