Gold To Hit This Level Before Rebounding - ABN Amro
(Kitco News) - Gold seems to be stuck below the $1,300 an ounce level for the next few months, according to ABN Amro. The Dutch bank expects gold to hit $1,275 at the end of June and then fall down to $1,250 by the end of September.
Main pressures dragging gold down in the near future will remain higher U.S. dollar and rising U.S. Treasury yields, the bank said in its Precious Metals Watch report on Friday.
“The gold price weakness started when U.S. yields and the U.S. dollar realigned again after four months of divergence. The combination of a stronger US dollar and higher US 10y nominal and real yields is a very negative environment for gold prices,” said ABN Amro senior precious metals and diamond analyst Georgette Boele.
Gold tumbled below its key psychological resistance level of $1,300 an ounce for the first time this year last week and continued to weaken further as markets opened on Monday. June Comex gold futures were last trading at $1,288.60, down 0.21% on the day.
Boele pointed out that gold is not done falling yet and could end the year around $1,250 an ounce.
“We expect gold price weakness to continue in the coming weeks and months. It is likely that gold prices will fall below USD 1,275 per ounce and test USD 1,250 per ounce this year followed by a stabilization,” she wrote.
ABN Amro’s outlook estimates that the U.S. Treasury yields will rise to 3.2% before the end of 2018. The Dutch bank also projects for the Federal Reserve to raise interest rates by another 75 basis points in 2018 and 50 basis points in 2019.
On top of that, Boele added that the U.S. dollar still has some upside potential left, but did not go as far as categorizing it as another bull run. “As we don’t expect this to be the start of another dollar bull-run, the upside in the U.S. dollar and the downside in gold prices should be relatively modest.”
On the positive note, the Dutch bank views the potential drop to $1,250 as an opportunity for investors to position themselves for higher gold prices next year.
“In the third and fourth quarter of 2018 we expect US GDP and 10y U.S. Treasury yields to peak. By end 2018, we think it is unlikely the Fed can surprise financial markets by being more hawkish, with rate hikes likely to have been fully anticipated by then,” Boele wrote. "The peak of growth and U.S. Treasury yields are against the background of a deterioration of the fiscal balance in the US. So all in all, dollar fundamentals will deteriorate at the end of this year and this should result in a lower dollar and higher gold prices in 2019.”