Geopolitical Risks To Persist, But Gold To End 2018 At $1,200 - Capital Economics
(Kitco News) - Geopolitical tensions will carry over into the next year and help support gold, but that won’t be enough to stop prices from dropping down to $1,200 by the end of 2018, according to Capital Economics.
“Heightened geopolitical risks [will] provide some support to gold prices in 2018,” Capital Economics said in a report published on Monday.
Geopolitics already played a key role this year, including the French elections, Brexit negotiations and increasing tensions between the U.S. and North Korea.
“The price of gold soared in July-August as the rhetoric escalated between President Trump and the North Korean leader, Kim Jong-un,” the report said.
Capital Economics’ estimate of gold tumbling down to $1,200 per ounce by the end of 2018 is actually an upward revision for the firm, which previously estimated a decline down to the $1,050 level.
The projection is still a significant drop from where gold prices are trading now, with December Comex gold last seen at $1,276.50, down 0.09% on the day.
Majority of downward pressure in 2018 will come from monetary policy tightening in the U.S., the report highlighted. “We expect the Fed to hike interest rates one more time in 2017 and four times in 2018. This compares with current market expectations of two and half rate hikes by end-2018 and should weigh on the price of gold in coming months.”
“Indeed, the prospect of higher US interest rates is not good news for commodity prices in general. However, rates will remain low by historical standards and we think that the big moves in the dollar are now behind us,” the report added.
When it comes to silver, Capital Economic said that the precious metal has been “resilient” in the face of higher U.S. rates, which is why the firm revised its end-2018 projections upward to $16.00 from the previous estimate of $14.50.
The call is still a drop from where silver prices are today, with December Comex silver last seen trading at $16.84 on Monday, down 0.04% on the day.