Standard Chartered Looks For $1,300/Oz Gold In 4Q
The report, written by precious-metals analyst Suki Cooper, hiked Standard’s fourth-quarter forecast to $1,300 from the previous $1,230. For some time now, the metal has been in a range of roughly $1,200 to $1,300.
“We believe prices are more likely to breach $1,300/oz than test the downside by year-endâ€¦,” the report said, listing expectations for a more dovish U.S. rate-hiking trajectory for 2018-19; less likelihood of sharply rising 10-year U.S. Treasury yields, and a view that India’s Goods and Services Tax on gold is likely to be a temporary administrative hurdle rather than have a structural impact on demand.
The bank does list a number of downside risks for gold, such as the U.S. Federal Reserve’s balance-sheet reduction, slowing inflation, India’s demand being affected beyond administrative risks, and significant gold holdings of exchange-traded products becoming loss-making if gold prices dip below $1,200.
Cooper pointed out that the past three Fed rate hikes have marked cycle lows for gold, but the lows are rising. Gold tested lows of around $1,050 during the first hike in a decade in December 2015, then around $1,130 a year later, then around $1,200 during the third hike.
“Prices have breached the 50- and 100-day moving averages, dipping below $1,250/oz, and we think upcoming hikes limit gold’s upside risk,” Standard Chartered said. “Scaled-back expectations bode well for prices later in the year.”
Standard Chartered economists look for the Fed to deliver its third hike of the year in December. However, Standard economists doubt that the Fed will deliver three additional hikes in 2018, instead forecasting two hikes.
Standard’s interest-rate strategists no longer expect the U.S. 10-year yield to register new “Trump-era” highs and forecast yields to reach 2.40% by the end of 2017.
“There is also growing evidence that Trump will be unable to push through a significant fiscal stimulus package,” the bank said, adding that this suggests lows for gold prices will be around $1,220 to $1,240.
Meanwhile, the bank’s foreign-exchange strategists raised their forecasts for the euro against the U.S. dollar for the fourth quarter to $1.16 from $1.12. A weaker dollar tends to support gold, and vice-versa.