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Metals Focus Sees Gold Price Hitting $1,450 By Year-End

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(Kitco News) - Gold may remain range-bound in the second quarter but likely will rise to $1,450 an ounce by the end of the year, the consultancy Metals Focus said in its 2018 Gold Focus report released Wednesday.

Many of the challenges that gold faced in 2017 persist, including investor commitment to equities despite recent volatility, Metals Focus said. Recent gains in Treasury yields have also hindered the metal, although the consultancy pointed out that gold is benefitting from the fact that few market participants are outright bearish, meaning they are not actively shorting the metal.

“Based on the above, we believe that the range-bound conditions, which gold has experienced during the first three months of this year, are likely to also persist during the second quarter,” Metals Focus said in the report. “Indeed, our projections call for an almost identical trading range of $1,290-$1,360 and a period average that is virtually flat q/q [quarter on quarter].

“Beyond that point, however, we continue to see scope for the gold price to break higher, potentially testing $1,450 before the end of this year.”

Factors likely to eventually boost gold include slower-than-expected economic growth in the U.S., renewed U.S. dollar weakness, real short-term interest rates remaining negative, and a lack of material upside in the stock market, with eventual corrections, Metals Focus said.

“While continued increases in U.S. [monetary] policy rates pose a headwind, we would argue that they are largely priced in,” the consultancy added.

Nikos Kavalis, director of Metals Focus, also commented that the twin U.S. trade and fiscal deficits “will lower investor appetite for bonds and the yield curve may flatten further,” thereby benefitting gold.

Nikos added that “when, rather than if, equities correct, we will still be faced with depressed yields. At this point, investor rotation back into gold, even on a modest scale, should help take it to around $1,450 by year-end. ”

Further, Metals Focus said it looks for gold to maintain a so-called risk premium from macroeconomic tail risks, even if the latter do not actually materialize. These risks include rising trade protectionism and the possibility of trade wars.

On the geopolitical front, some risks have dissipated, such as a recent thawing in the U.S.-North Korea relationship, Metals Focus said. However, the firm added, the U.S. threat to pull out of the Iran nuclear deal could unsettle markets.

In terms of gold’s supply/demand fundamentals, Metals Focus said it expects jewelry fabrication to hit a three-year high of 2,186 tonnes in 2018, up from 2,143 last year, backed by growth in India and China. Physical investment is expected to improve to 1,078 tons from 1,035, while net official-sector purchases are projected to decline marginally to 350 tonnes from 374 in 2017.

Meanwhile, mined supply of gold – which has grown for a year – may edge up marginally to a new peak but rise by just 0.1% to 3,295 metric tons from 3,292 in 2017, Metals Focus said. Total supply, including recycling, is expected to tick up to 4,480 tonnes from 4,458.

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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