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Gold To Benefit From All the ‘Wildcards’ Still At Play - OCBC’s Barnabas Gan

(Kitco News) - Although expectations for a rate hike in the U.S. have increased, there still remains a 50-50 chance that it will materialize. For this reason, one economist expects gold strength to remain intact.

“Despite the improving US-centric fundamentals, we expect investors to remain long in gold given the need to insure against wildcards into the year, namely the growth risk from Brexit into 2017 and the upcoming November’s US,” noted Barnabas Gan, commodity economist  for the OCBC Bank, in a report Tuesday.

“As such, despite our expectation for the Fed to hike rates by 25bps in December, we think that sustained risk aversion from the suspense will continue to lift gold demand on safe haven demand.”

The once-named top Bloomberg gold forecaster upped his outlook in June and maintains that gold prices will trade at $1,350 an ounce by year end if the Federal Reserve does hike rates in December. If not, prices could go up to $1,400 an ounce, he added.

The yellow metal has been under pressure, hitting a four-week low Wednesday as markets await the biggest news item of the week: Janet Yellen’s address at the Jackson Hole Symposium. December gold futures last traded down $5.90 at $1,323.80 an ounce.

Although some pundits say the Brexit vote was overblown, Gan argued that the real “known unknown” is when Britain actually leaves the European Union. This uncertainty is what’s helping gold. 

“[T]he market is relatively unsure of when, and of what consequence, will it spell for both Europe and global growth engines,” he wrote. “At least at this juncture, it is a fact that a full-blown consequence from the Brexit is still not felt at this juncture.”

Although speculative demand is expected to pick up on more safe-haven demand, Gan noted that physical demand, which has been lackluster from India and China, may also have the potential to shift gears.

“The hope for stronger physical demand however, may lie in the purchasing power of the Chinese, given that Chinese gold imports from Hong Kong has risen substantially to 122k kilograms (highest since Dec 2015), and clocking three consecutive months of double-digit positive growth.”

By Sarah Benali of Kitco News;



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