Gold To Drop 2% In 2017 As Interest Rates Rise - World Bank
Gold prices will see a decline of 2% this year as the Federal Reserve continues to raise interest rates and safe-haven buying subsides, this according to the World Bank’s April Commodity Markets Outlook.
The World Bank estimates that in 2017 gold prices will average $1,225 an ounce in nominal U.S. dollars. In 2018, prices are to fall down to $1,206, then to $1,187 in 2019 and will reach $1,169 by 2020. By 2030, the World Bank sees gold hitting $1,000 an ounce.
The upside risks to the forecast include “widening geopolitical tensions, stronger-than-expected physical demand in China, delays in anticipated central bank rate increases, and mine supply shortfall,” the report outlines.
The downside risks are “stronger economic growth, faster-than-expected increases in U.S. interest rates, and weaker physical demand.”
The World Bank notes gold prices were volatile during the first quarter of 2017.
The yellow metal struggled in December following a Fed rate hike, but managed to recover over the first quarter amid heightened geopolitical and economic tensions. Gold was able to keep up its strength even after another U.S. interest rate increase in March, according to the report.
“A number of factors have pushed investors towards gold as a safe-haven asset, notably rising global tensions surrounding Afghanistan, Syria, and North Korea; the deterioration of U.S./Russia relations; and upcoming elections in several countries amid rising populist sentiment. In addition, uncertainty about inflation, deficits, and the level of the dollar have also helped propel gold prices higher,” says the World Bank.
Physical gold demand is still weak, states the report, highlighting China’s declining interest in gold jewelry, especially among the millennials.
Gold mine supply, on the other hand, is continuing to advance, driven by lower costs.
In 2016, the biggest producers of gold were China, with 464 tons, followed by Russia with 288 tons, Australia with 285 tons, the U.S. with 236 tons, and Canada with 163 tons.
Other precious metals have a more uplifting forecast, with the World Bank projecting for silver and platinum prices to rise 1%, partly due to strong industrial demand.