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Expect Gold Prices To Drop Below $1,300 In The Next Few Weeks - ABN Amro

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Expect Gold Prices To Drop Below $1,300 In The Next Few Weeks - ABN Amro

(Kitco News) - The excitement in the gold market space might not last, with ABN Amro warning of a looming drop in prices in the next few weeks.

“Gold prices are toppish at current levels and we expect prices to move below USD 1,300 in the coming weeks,” the Dutch bank said in its Precious Watch report published on Thursday.

Gold is already up 3% since the start of 2018, but this does not guarantee a good year, said Georgette Boele, senior precious metals and diamond analyst at ABN Amro.

A gold rally in the beginning of the year is pretty much a historic trend, Boele pointed out. “Since 2006, in nine out of thirteen years, gold prices had a positive start to the year; but in only four of these occasions (30%) the year ended in higher prices as well,” she wrote.

This year, however, is proving to be a unique one because gold’s usual relationships to other markets have witnessed some abnormal movements.

“For example, gold prices generally decline if 10-year US real yields rise. This is because the rise in 10-year US Treasury yields more than compensates for the rise in inflation expectations . . . So far this year, the rise in 10-year US Treasury yields (nominal and real) has not weighed visibly on gold prices. Moreover, higher expectations of Fed rate hikes in 2018 and 2019 and positive equity markets have also not weighed on gold prices,” Boele said.

Gold’s 2018 rally has been solely sustained by weaker U.S. dollar, noted the Dutch bank.

“The strong negative relationship between the U.S. dollar and gold prices has remained in place. This is also visible in gold’s performance versus the euro and the yen. This proves once more that out all of the drivers, the U.S. dollar is the variable to watch,” Boele said.

The U.S. dollar has had a bad year in 2017 as risks around the political situation in the country increased, while other major global economies surprised on the upside, according to the note.

But now, the greenback might be ready for some short-term recovery, which would drag gold prices back down below last year’s key psychological level of $1,300.

“The U.S. dollar has been beaten up too much and that U.S. fundamentals remain pretty sound. Furthermore, the odds for more Fed rate hikes are increasing. . . . If investors scale back their expectations about the timing of ECB rate hikes in 2019 and a possible change in BoJ policy, the euro and the yen will suffer and it is likely that the U.S. dollar will profit,” Boele said.

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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