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Gold To Head Lower After This Rally, Dropping To $1,100 By Year-End - OCBC

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Gold To Head Lower After This Rally, Dropping To $1,100 By Year-End — OCBC

(Kitco News) - From here on out, gold prices will be on a downward trajectory until they hit $1,100 in Q4 of 2018, OCBC Bank said in its 2018 Commodities Outlook.

“The yellow metal should continue to fade lower into the year as interest rates gradually rise amid a positive global growth backdrop. We keep our outlook at $1,100/oz at year-end,” OCBC’s economist Barnabas Gan wrote in a report released on Wednesday.

Gan based his analysis on the view that “a goldilocks economy” is not “a gold-loving economy.”

“The rosy economic outlook, tame inflationary backdrop and potentially higher interest rates in both developed and Asian economies are persuasive factors to drag gold prices lower. As such, we keep our gold outlook unchanged at $1,100/oz at year-end,” he said.

So far, gold’s 2018 rally has been driven by weaker U.S. dollar, Gan noted, adding that despite his bleak annual projections, he still sees gold prices finishing Q1 above $1,300 level.

“The DXY index fell to as low as 88.4 earlier this year, before rising back to above 90.0 of late as the global equity slump ensued,” Gan said. “The traditional relationship between gold and the greenback is hard to disregard. The 30-day correlation between the said assets remain strong at -0.91 in early February, suggesting that gold’s climb has largely been attributed to the weaker greenback.”

But, Gan pointed that the dollar-gold relationship could weaken as global economic conditions continue to evolve this year.

OCBC said it also sees gold demand remaining weak in 2018, after witnessing an eight-year low last year.

Gan’s outlook was published just as gold prices rallied above $1,350 an ounce on Wednesday following the release of the latest American inflation and retail data. 

“The big U.S. economic report of the week saw the consumer price index report come in hotter than expected,” said Kitco’s senior technical analyst Jim Wyckoff.

“CPI for January came in at up 0.5% from December and up 2.1%, year-on-year. The closely watched “core” rate (minus food and energy prices) came in at up 0.3% from December and up 1.8%, year-on-year,” he said in the PM Roundup. “A downbeat U.S. retail sales report on Wednesday also helped to rally the gold and silver markets.”

April Comex gold futures were largely flat in Asian trading on Thursday, with prices last at $1,356.50, down 0.11% on the day.

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