Get Ready: $1,400 An Ounce Gold Is Coming... Just In 2020 - Capital Economics
(Kitco News) - Frustrated gold bulls will see their wishes of $1,400 an ounce gold come true, they just need to stay patient, according to a recent note published by Capital Economics.
In the near-term, gold prices will remain supported by rising geopolitical tensions, but gains will be capped by U.S. monetary policy tightening and weak consumer demand in India and China.
“Strong safe-haven demand on the back of heightened geopolitical risk has been a key factor sustaining prices,” Simona Gambarini, commodities economist, said in a note published on Monday. “Given the threat of a trade war, tensions in the Middle East and between Russia and the U.S. and the risk that the Iranian nuclear deal will collapse, there has surely been no shortage of reasons for investors to seek refuge in safe havens.”
Gambarini reminded investors that since the start of 2018 gold witnessed a divergence in the historical inverse relationship between U.S. interest rates and the price of gold.
“The strength in the price of gold came in spite of the Fed hiking interest rates both in December and in March.”
In light of this, Capital Economics has revised its gold projections upwards, said Gambarini. “Our end-2018 forecast for the price of gold [is] $1,300 per ounce, [up] from $1,270 [set] previously,” she wrote.
The $1,300 target is not very high as the precious metal will continue to be weighed down by at least three more rate hikes this year, the commodities economist said.
Yet, gold bulls should not give up hope of a rally, as something big is coming in 2019 and 2020, she added, noting that Capital Economics’ end-of-year 2020 forecast is $1,400.
“As the fiscal stimulus begins to wear off and the cumulative monetary tightening starts to bite, we expect U.S. GDP growth to slow sharply in the second half of 2019. While it isn’t our central assumption, there is a risk of a modest recession developing in either late 2019 or in 2020,” Gambarini stated.
A dramatic slowdown in growth could “force” the Federal Reserve to cut interest rates again to between 2.00% and 2.25% by year-end 2020.
And in the end of the day, it will be gold that benefits from all of this, according to the note.
“Lower interest rates in the US, coupled with the prospect of growing deficits in both the current account and federal budget, will weigh on the U.S. dollar. Indeed, we expect the greenback to depreciate against the other majors from now to 2020, which should also be supportive of higher gold prices,” Gambarini explained.
In the meantime, gold prices struggled through Monday’s session, sinking to a two-month low amid higher U.S. dollar. June Comex gold futures were last at $1,319.20, down 0.32% on the day.