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BMO Looks For Gold Price To Remain Above $1,300/Oz

Kitco News

(Kitco News) - BMO Capital Markets looks for gold demand to continue even if the U.S. dollar recovers from some of its recent weakness, expressing confidence that the metal can remain above $1,300 an ounce even on a pullback.

Spot gold Thursday traded as high as $1,366.05, its strongest level since August 2016, before backing down. The metal has been boosted in recent days by weakness in the U.S. dollar in the wake of comments Wednesday by U.S. Treasury Secretary Steven Mnuchin saying that a softer dollar would be “good” for the U.S. This is a turnabout from other administrations, which have favored a strong-dollar policy during the last quarter of a century.

“Gold has outperformed our expectations since the mid-December Fed rate increase,” BMO said in a research note Thursday. “Gold is currently benefiting from a combination of geopolitical and economic tailwinds, most recently comments from Treasury Secretary Mnuchin supporting a weaker USD.”

Meanwhile, equities of gold-mining companies – which have underperformed the metal itself -- are now trading at early 2016 levels, which BMO said is “a clear buy signal that is starting to be noticed.”

Analysts said they doubt the dollar’s decline will be an ongoing trend, especially as other central banks adjust to recent moves.

“However, it is difficult to see a reason why investment demand for gold, which has also been strong YTD [year to date], should turn negative given the positive flows towards commodities as an asset class and rising trade friction potential,” BMO said.

Analysts pointed out that known exchange-traded-fund ETF holdings of gold are up 1.4% so far this year, totaling 72.5 million ounces. Inflows have been relatively steady.

“This gives us a degree of confidence that a gold price range above $1,300/oz can be sustained for now,” BMO said.

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