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Commerzbank Forecasts Avg. $1,325 Gold Price In 2018

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(Kitco News) - Gold should rise for a third straight year in 2018, aided by low or negative real interest rates and ongoing political uncertainty in the U.S. and Europe, said Commerzbank in its outlook for the new year.

The German bank said silver should outperform due to industrial demand, while this year’s biggest gainer – palladium – won’t keep rising since “the tailwind from the automotive sector should abate.”

Commerzbank forecast that gold will average $1,325 an ounce in 2018, with an average of $1,300 in the first two quarters of the year and $1,350 in the final two. Silver was seen averaging $17.25 in 2018.

Spot gold was around $1,247 an ounce as of the release of the outlook, while silver was around $15.80. Gold was still up by 8% for the year although well down from the September peak.

“The gold price is likely next year to continue the rise it commenced two years ago,” Commerzbank said. “The main contributory factors here remain the extremely loose monetary policy pursued by nearly all key central banks, resulting in ongoing very low to negative interest rates. Political uncertainty is also likely to be a constant feature throughout the year.”

The political uncertainty includes the “difficult process” of forming a government in Germany and probable parliamentary elections next spring in Italy, the bank said. The Catalonia separatist and Brexit issues also will remain a focus of markets.

“Furthermore, there is no reason to assume that the second year of Donald Trump’s presidency in the U.S. will run any more smoothly in terms of domestic or foreign policy than the first one did,” Commerzbank said.

Further, Commerzbank added, geopolitical concerns remain, including those surrounding North Korea, the Middle East, Venezuela, plus tensions between the West and Russia due to the probe over Russian influence in the U.S. election and Ukraine.

U.S. policymakers are expected to keep raising U.S. interest rates in 2018. However, that does not preclude a rising gold price, since other central banks are expected to do the same, Commerzbank said. With other central bankers hiking, this would limit any rate-related gains for the U.S. dollar.

“Physical gold demand should generate somewhat more tailwind next year,” Commerzbank said, characterizing this buying as “fairly subdued” in 2017.  

Silver underperformed gold in 2018, Commerzbank said, pointing out that while industrial demand grew, purchases for bars and coins slumped by more than a third, thereby hurting overall demand. Silver is low historically with a gold/silver ratio of around 78, meaning it takes 78 ounces of silver to buy an ounce of gold. By contrast, it was 67.5 in early March.

“Hence, silver has catch-up potential vs. gold,” Commerzbank said. “The positive economic development is likewise an argument in favor of silver because it means that industrial demand is likely to become even more dynamic – which accounts for more than half of total silver demand. It is hard to imagine that demand for bars and coins will fall as sharply again. Given that it is entirely conceivable that demand for bars and coins will be stronger, as well as demand from ETF [exchange-traded-fund] investors, demand growth is likely to be even more pronounced.”

Commerzbank forecast that palladium will average $1,010 an ounce in 2018 and platinum will average $975. The palladium average was put at $1,025 in the first two quarters and $1,000 in the final two. Platinum is seen showing more improvement over the course of the year, with an average first-quarter average forecast of $925 and an average of $1,000 in the fourth quarter.

Both metals are used in auto catalysts, with palladium underpinned in 2017 since it goes into the gasoline-powered cars that make up the world’s two largest auto markets – the U.S. and China.

“After soaring by approx. 50% to a 17-year high this year, we believe that the upside potential for the palladium price is largely used up,” Commerzbank said. “Though a further rise cannot be ruled out in the short term, the substitution [toward platinum] debate is likely to put the brakes on the high-flying prices. What is more, car sales in the U.S. and China are hardly likely to maintain their high level of recent months….”

Meanwhile, platinum should follow gold higher, Commerzbank said.

“As we envisage a rising gold price, platinum should also make gains – though the fundamental data mean that platinum is hardly likely to develop any intrinsic strength.”

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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