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BMO Sees Average Gold Price Of $1,280/Oz in 2018

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Editor's Note:View Kitco News' full 2018 outlook coverage

(Kitco News) - Gold prices will average $1,280 an ounce in 2018, with buying interest, as an inflation hedge and due to loose monetary policy globally, offset by a strong U.S. dollar, said BMO Capital Markets in a report late Monday.

“A slow and steady interest-rate hike cycle proposed by the Federal Reserve and subdued investor demand are expected to keep prices in check and cap any significant upside potential,” the bank said.

Analysts described the metal as “remarkably stable” over the last two years, compared to the broader commodity complex, saying gold prices were range-bound during normalization of monetary policy and as dissipating geopolitical risks meant less safe-haven interest. This was offset by building inflationary pressures, which meant some market participants are looking to increase their allocation to gold as a hedge.

“We see benefit coming from still-loose monetary policy and renewed inflation concerns, but potential for headwinds from dollar strength,” BMO said.

Macroeconomic data point to a strong U.S. economy, with the labor market nearing full employment, BMO said. U.S. inflation is forecast to slowly move toward the long-term target of 2%, BMO continued. The market anticipates at least two more Federal Reserve rate hikes in 2018 in the wake of another 25-basis-point tightening in December.

“With this outlook already priced in at the current price levels, we do not expect a significant deviation from the expected range-bound outlook over the near term unless the U.S. Fed drastically shifts from its current policy framework,” BMO said.

Traders will be closely watching for any monetary-policy signals from incoming Fed Chair Jerome Powell, although he is expected to maintain the course set by outgoing Chair Janet Yellen, BMO said.

Meanwhile, gold should benefit from “over-allocation” by investors in emerging-market nations who have a lack of other options, BMO said.

The bank’s $1,280-an-ounce outlook for gold in 2018 is a downward revision of 1.5% from its previous estimate. Analysts then look for a $1,250 gold average in 2019.

Meanwhile, BMO is forecasting that silver prices will average $17.78 in 2018 and $17.90 in 2019. Analysts suggested silver could play “catch-up” to gold, especially with industrial momentum leaving much of the market focus on base metals.

BMO looks for the gold/silver ratio to fall from around 79 as of mid-December to roughly 72. This ratio measures the number of silver ounces it takes to buy an ounce of gold, with a smaller number meaning an outperformance by silver.

“Recovering industrial demand is expected to see the gold/silver ratio mean revert over time, and while price forecasts were reduced, we expect the metal to relatively outperform gold over the coming years,” BMO said.

In particular, photovoltaic silver demand for solar panels is recovering, BMO said. The bank said it also looks for jewelry and silverware demand to contribute to a “resilient” market outlook for silver.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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