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Two French Banks List Contrasting Outlooks For Gold Prices

(Kitco News) - A pair of French banks has listed mixed views on the gold market, with Credit Agricole looking for more gains but Societe Generale suggesting the rally so far in 2016 is unsustainable.

As of 10:41 a.m. EDT, Comex April gold was $35.50 higher for the day at $1,265.30 an ounce. This represented a gain of 19.3% for the year to date.

Credit Agricole listed a forecast of $1,250 an ounce in December, with this rising to $1,320 by December 2017. Societe Generale listed a fourth-quarter forecast of $1,075, then a 2017 average of $1,000.

Credit Agricole attributed gold’s gains for most of 2016 to risk aversion due to global economic worries, as well as rising currency-debasement fears on the back of central banks cutting interest rates further into negative territory.

“Looking ahead, we expect a combination of global growth uncertainty and tighter monetary conditions, as related to the Fed, to keep risk sentiment unstable,” Credit Agricole said. “Central banks such as the ECB (European Central Bank) and BOJ (Bank of Japan) are likely to keep interest rates low for longer. All of the above is likely to keep gold prices on an uptrend.

“Starting next year we expect USD (U.S. dollar) downside risks to increase, which should keep gold
downside risks limited, even if risk sentiment starts to improve more considerably and evenly.”

Meanwhile, Societe Generale said it remains bearish on gold, although it upped its average 2016 gold forecast to $1,150 per ounce to reflect stronger prices so far. This bank also linked the gains to growing fears about the global economy, particularly China.

“However, we believe that the rally is not built on solid foundations, as gold will come under continued pressure in a rising interest-rate environment,” Societe Generale said. It described the investment in gold-backed exchange-traded funds so far this year as “spectacular.” However, the rising prices have caused the physical market in traditional gold-buying nations such as India and the Middle East to dry up, the bank continued.

“As a result, we believe that it will prove increasingly hard for Western investors to sustain the rally, and it is likely that a turning point will come when ETF flows dry up,” Societe Generale said. “Causing this development could well be a growing realization that the risk of an imminent U.S. recession, while not negligible, is far lower than the markets are currently factoring in.

“We expect the Fed to raise interest rates again in December this year with a further three to four rises probable during the course of 2017. This will be central to both dollar strength and sustained weakness in gold prices, and hence gold will continue to see a bear market.”

By Allen Sykora of Kitco News;



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