BAML Sees Gold Prices Averaging 2018 $1,357; Look For $1,400 In Q4
(Kitco News) - Although the U.S. dollar has room to move higher in the next quarter, there are a number of difficult headwinds that could drive gold prices higher later in the year, according to the latest research from Bank of America Merrill Lynch (BAML).
In a report Monday, the investment bank said it has increased its gold forecast for the year. The analysts now see the yellow metal averaging around $1,357 an ounce in 2018, up 2.4% from their previous forecast.
The bank is looking for gold to break through its current trading channel and push to $1,400 an ounce by the fourth quarter. Analysts are also optimistic on silver as they see prices averaging above $17 an ounce this year, pushing to $17.50 an ounce by the fourth quarter.
The firm’s updated gold outlook comes as prices have managed to bounce off a nine-week low. The metal has been under significant pressure, while the U.S. dollar has seen a surge in momentum. The U.S. dollar index is currently trading at 91.86, its highest level since January. June gold futures were last at $1,317.20 an ounce, down 0.47% on the day.
The biggest factor behind the firm’s updated bullish forecast is renewed weakness in the U.S. dollar, which will struggle under the weight of the country’s growing deficit.
The analysts said that although the U.S. dollar will get some support from government fiscal stimulus measures, including historic tax cuts that came into effect in January, there is a lot of uncertainty down the road.
“The fiscal stimulus is not fully funded and the budget deficit could be increasing to 5% according to our colleagues in the economics team,” the analysts said. “This suggests that the cost of providing short-term stimulus is high. While the relationship between the US currency and the deficit is often somewhat tenuous, a bigger fiscal shortfall ultimately often puts pressure on USD, which in turn is supportive for gold.”
BAML is also positive on gold due to rising inflation pressures. The report explained that rising inflation is pushing bond yields higher, which in turn is creating volatility in equity markets, making gold an attractive safe-haven asset.
“Concerns over increases in general price levels and, in turn, higher nominal rates have had a strong impact in equity markets in recent weeks. This dynamic is important for gold because cross-asset volatility is supportive for the yellow metal,” the analysts said.