Gold Sees Strong Start To 2017 But Momentum Won't Last - ABN AMROBy Kitco News
Thursday January 05, 2017 09:47
(Kitco News) - While gold is starting the new year on a strong note, one international bank remains skeptical that the market can hold on to its gains past January.
In the first three trading days of 2017, gold has pushed above a key retracement, as a result of a weaker U.S. dollar and falling U.S. bond yields. However, despite its recent gains, Georgette Boele, coordinator of foreign exchange and precious metals strategy at ABN AMRO, said that the bank is expecting the yellow metal to struggle in the first half of the year.
The Dutch bank expects gold prices to average $1,131 an ounce for the year, with the possibility of prices falling below $1,100. At the same time, the bank expects silver prices in 2017 to average around $15.40 an ounce.
February gold prices last traded at $1,177.90 an ounce, up more than 1% on the day, reacting to weaker-than-expected December U.S. private-sector employment gains. March silver futures were $16.65 an ounce, up 0.59% on the day.
So far gold is up 2% in the first trading week of 2017; silver is up more than 4%.
Boele added that she is not surprised that gold has had a positive start to the year.
“Since 2000, gold prices have had a tendency to have a positive start to the year, with prices rising in January 65% of the time. The positive starts to the year happened regardless of whether the year before had ended on a positive or a negative note,” she said in a report published Thursday.
Boele said that she is negative on gold in part because of rising bond yields in a low inflation environment.
“From an investor point of view, there is little reason to hold gold as an investment. For a start, rising inflation expectations are more than countered by the rise in U.S. Treasury yields and expectations about upcoming rate hikes by the Fed,” she said. “As long as U.S. real yields rise and there are no major inflation fears, gold prices will go lower and not higher.”
She added that she also sees potential for a stronger U.S. dollar as the Federal Reserve prepares to raise interest rates three times this year, creating a widening interest-rate gap among other major central banks.
While the Dutch bank is negative on gold in the first half of the year, Boele said that she does see some hope for the precious metals in the second half and expects prices to stabilize, creating a base from where prices can rally in 2018. The bank expects gold prices to average around $1,200 an ounce next year and silver to average $17 an ounce.