Gold Price Outlook 'Hazy' As Fed And Geopolitics Dominate - OCBC
(Kitco News) - The year-end price outlook for gold is increasingly "hazy," as the yellow metal is being pulled in different directions by geopolitical risks and prospects of additional monetary policy tightening by the U.S. Federal Reserve, OCBC Bank said in a report.
The bank projects gold will hang onto its $1,300 price tag in the near future, but warns that another rate hike by the Fed in 2017 could spell out a retreat back to $1,250.
"Gold prices could likely find support at its $1,300/oz handle over the months ahead, though a bearish trend towards our $1,250/oz year-end call remains conceivable especially if market-watchers re-tune their vision back to the relatively rosier market fundamentals and potentially higher interest rates into 2018," wrote OCBC's economist Barnabas Gan.
The idea the Fed could raise its key interest rates once again in December along with the planned reduction of its balance sheet is restraining gold prices.
"[It is] by far the most persuasive driver for lower gold prices," Gan said. "Fundamentally, the central banks' willingness to rein in their previously loose monetary policies may be seen as an act of confidence over sustained healthy global economic fundamentals."
Yet, it is important to keep in mind that gold does really well in the times of uncertainty, and geopolitical risks surrounding North Korea are far from fading.
"The uncertainty over potential intensification of geopolitical tensions will likely dominate over market fundamentals. Until then, Pyongyang's relentless pursuit to develop nuclear powers despite toughened sanctions suggests an unlikely quick resolution to the current conflict," the economist noted.
Prior to cooling off, gold surged nearly 13% in less than three months, largely driven by geopolitical tensions. The yellow metal rose from $1,204 in early July to above $1,360 in September.
Prices have retreated since then, as traders took advantage of profit taking while risk appetite improved and hurt gold. December Comex gold was last seen trading at $1,311.00, down 1.07% on the day.