Gold To Remain ‘Tied’ To The Fed In 2018 - RBC Capital Markets
“Gold’s fortunes will remain largely tied to the Fed (both the path of rate hikes and intertwined speculation about the next Fed chair),” Christopher Louney, commodity strategist at RBC Capital Markets, said in a research note on Thursday.
The near-term monetary policy focus will still be on December’s Fed meeting, with the prospect of a rate hike priced in above 80%, the report added.
Overall, the yellow metal will remain in “trickle down” mode due to gold-negative macro headwinds, Louney specified.
“Our Q4 2017 average price forecast for gold remains $1,265/oz and we reiterate our 2017 average price forecast of $1,256/oz (versus $1,255.51/oz YTD). Our annual average forecast for 2017 is $1,256/oz (versus $1,255.51/oz YTD) and for 2018 it is $1,303/oz,” he wrote.
Unexpected geopolitical risks are one of the few triggers that can boost gold prices higher than expected, the bank noted.
“While North Korean worries seem to be on the back burner as far as gold prices are concerned, more recently the headlines around Spain and Catalonia drove some upside,” Louney said.
Physical global gold demand is also critical to consider when forecasting price movements, according to Louney, who highlighted Europe and China as key markets for gold exchange-traded products (ETPs) and consumer demand, respectively.
“While the largest gold ETPs are in the US, Europe has seen stronger flows, on both a relative and absolute basis,” he said.
“[On the other hand] consumer markets, which are largely represented by jewelry, bar and coin demand, are dominated by Eastern gold markets. In fact, India and China alone represent more than 50% of global jewelry, bar and coin demand in any given period . . . China represents a bright spot with its upward trajectory, a theme we expect to remain intact for some time given divergent gold policy stances among the world’s two largest consumers,” the commodity strategist added.