Gold's Going Back To $1,300, Silver To $19 - Commerzbank
Friday December 02, 2016 12:07
(Kitco News) - Gold investors breathed a small sigh of relief Friday as the metal bounced back from 10-month lows hit earlier in the week, and one German-based bank expects this “upward trend” to continue into next year.
“The headwind from U.S. dollar appreciation and the rise of bond yields should abate and investment demand should pick up again also, given the numerous risk factors,” said analysts from Commerzbank in a report released Friday.
“Furthermore, the only modest gold demand in Asia this year should revive noticeably.”
Gold prices were modestly higher Friday despite the release of positive U.S. employment data. The gold price has been pressured by a strengthening U.S. dollar, which fell under pressure post-jobs. February Comex gold futures got a boost, last trading 0.71% higher at $1,177.70 and ounce.
According to Commerzbank analysts, gold’s recent price declines can be linked to weakness in both physical and investment demand for the metal. Central bank purchases are also weaker, they explained.
However, the analysts remain optimistic on the gold price given that they expect this lower demand trend to reverse course.
“This year’s moderate demand for gold in Asia is likely to pick up thanks to low prices and an improved income situation among India’s rural population following a better monsoon season,” they said, adding that weakness of central-bank purchases is “probably temporary.”
But, for gold prices to move higher, the continued, investment demand needs to pick up steam.
“This [investment demand] in turn is heavily dependent on monetary policy expectations, the U.S. dollar’s performance, bond yields, stock markets and the risk appetite of market participants,” they said.
Although gold prices are likely to move higher, the analysts said they do not expect to see the same kind of rally seen at the beginning of 2016, when prices saw their best start in 30 years, jumping 20% in the first quarter.
However, they added, there are still several factors working in gold’s favor for 2017.
“Our currency and fixed-income strategists expect a further, albeit moderate, appreciation of the U.S. dollar in 2017 and a likewise moderate increase in bond yields. The headwind for gold from this side should therefore ease gradually,” they said.
“Furthermore, higher inflation should keep real interest rates – which are important for gold – low. Still very low and partially negative real interest rates, ultra-loose monetary policy among most Western central banks and rising inflation suggest that investment demand will be more buoyant again, though unlikely to match the level seen in the first half of 2016.”
The analysts suggested that gold prices are likely to rise to $1,300 an ounce by the end of 2017. For silver, the analysts said they expect the price to rise to $19 an ounce by the end of 2017 and average around $18 an ounce next year. March silver last traded at $16.775 an ounce, up 26.9 cents on the day.