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Gold's Bullish Scenario: Prices To Rally To $1,445 In 2018 - ETF Securities

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

(Kitco News) - Gold’s role as a risk management tool and a store of value will be greater than ever in 2018, ETF Securities said in its outlook for the year ahead.

“Gold’s potential to serve as a dynamic, multi-faceted, and cost-effective portfolio hedge against many known and unknown risks may be a powerful tool for long term investors,” said Maxwell Gold, director of investment strategy at ETF Securities.

The price range for the yellow metal may vary between $1,445 and $1,070 depending on which scenario plays out in the new year, according to the investment firm.

“Against the current backdrop of stretched valuations, rising uncertainty, asset correlations, and record low volatility globally, gold demand as a risk overlay may continue to rise into 2018,” Gold said. 

Three Scenarios For Gold In 2018

In a bullish scenario, gold could rise to the $1,445 an ounce in 2018, driven by higher-inflation, complacent Federal Reserve (Fed), which will be waiting for a confirmation of economic recovery, and investor concerns around Fed’s balance sheet reduction, Gold pointed out.

On the flip side, gold could tumble down to $1,070 in a bearish scenario, pressured by a more hawkish Fed and an aggressive balance sheet unwind in the new year, he added.

But, ETF Securities’s base case scenario calls for three rate hikes by the Fed next year, higher U.S. dollar and a quicker inflation pace of 2.6%, which is likely to lead to $1,250 – $1,300 gold price range.

The report said that the central bank “will remain data-dependent” and analysis will be more “influential” in the Board’s decision-making.

In terms of the U.S. inflation, ETF Securities expects an acceleration to 2.4% in June 2018 and 2.6% by December 2018.

“These levels will likely be uncomfortably high for the Fed, but given the lags in policy and price response, there is little the Fed can do next year to stop it (the inflationary pressure has been built up this year),” Gold said.

Silver Is The Metal To Watch In 2018

Silver is looking to become the best performer of 2018, according to ETF Securities, which is projecting a rise to $19 an ounce and then an easing to $18 an ounce by mid-2018.

“Silver may be setting up to be a leader next year. Many of silver’s key drivers remain bullish for the white metal, including rising global manufacturing and industrial production, rising producer inflation and elevated consumer inflation, and strong investor sentiment,” Gold said. “Supply is constricted by lower capital expenditure by miners while demand for industrial applications including solar panels grows.”

The demand for silver is looking solid for next year as well, mainly driven by growing popularity of solar panels, the report said.

“Silver demand for solar panels is a growing segment of its industrial demand with record levels expected in 2018. US saw solar capacity rise 95% in 2016. International solar usage may spur growth amid climate controls and growing energy needs in India and China,” Gold pointed out.

For platinum, Gold said to expect a rebound, supported by Chinese auto demand, with emission regulations going into effect in 2018, as well as an improving South African economy.

When it comes to palladium, Gold noted that the metal might again be ignored by investors next year.

“Despite record highs, record bullish sentiment, and attractive fundamentals, retail investors still haven’t embraced palladium this year,” Gold said. “Many are cautious of the rapid rise in price since 2016; despite this rally being driven by supply-demand dynamics. If retail investors, however, change gears and begin to move into the palladium market en masse, prices may move higher creating a new leg for the current rally.”

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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