Commerzbank Sees $1,350 Gold, $18 Silver By Year-End
Gold hit a six-month low this week as the dollar hit an 11-month high, benefitting from the divergence in U.S. and European monetary policy as well as European politics, the bank said. The Federal Reserve hiked U.S. interest rates again this month, while the European Central Bank said its benchmark rates would not rise until after the summer of 2019.
As this underpinned the greenback, gold was unable to garner a safe-haven bid despite weakness in equities generally blamed on global trade tensions. Further, data for U.S. coin sales and exchange-traded funds suggest muted investment interest for the metal, Commerzbank reported.
“We regard its [gold’s] current price weakness as temporary,” Commerzbank said, adding that “gold should turn positive once the dollar strength starts to fade.”
For starters, Commerzbank said further losses by gold should be limited since the market has already factored in two more U.S. rate hikes this year. Meanwhile, there are numerous risks such as international trade conflicts, political crises, the dispute over Iran sanctions and high-priced stock markets that could be ripe for corrections.
“Because the ECB at its last meeting essentially ruled out any rate hike before the summer of 2019, the sizeable interest advantage enjoyed by the U.S. dollar is likely to remain in place for the foreseeable future,” Commerzbank said. “We have therefore lowered our price forecast for the third quarter to $1,300. We still envisage a gold price of $1,350 per troy ounce at the end of 2018.
“The Fed’s signaled rate hikes will bring its interest rate close to a level that is considered neutral next year. The Fed is hardly likely to go much above this so long as the U.S. economy does not overheat. In the past, the market has tended to anticipate the end of the rate hike cycle considerably earlier. In 2006, the gold price began making noticeable gains already six months before the last rate hike. The debate on the approaching end to Fed rate hikes should drive gold up to $1,500 per troy ounce by the end of 2019.”
Should gold rise, silver is likely to follow, Commerzbank said.
“We expect to see silver at $18 per troy ounce by year’s end and at $20 per troy ounce by the end of 2019,” the bank said.