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JPMorgan Remains Bullish On Gold But Downgrades Price Forecasts

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J.P. Morgan Remains Bullish On Gold But Downgrades Price Forecasts

(Kitco News) - Gold will leave behind its tight trading range and climb towards $1,400 an ounce in Q3, said J.P. Morgan, while still lowering its price forecasts for this and next year.

“Our overall macro view remains largely unchanged and we still remain bullish on copper, gold and silver,” economists at J.P. Morgan said in a report published last week.

The bank sees gold prices heading to $1,390 this summer and then climbing above $1,400 in 2019.

Despite being quite bullish on gold, J.P. Morgan downgraded its average annual price projections by 4% in 2018 and 2019.

In February, the bank estimated for gold to average $1,408 an ounce in 2018 and $1,475 in 2019, but is now expecting $1,355 in 2018 and $1,412 in 2019.

“We have reduced our outlook on precious metals prices a bit more materially but still retain a bullish forecast trajectory,” the report said. “With the risks of further dollar bullishness throughout this year and next clearly rising, in our view, we roll these write-downs throughout our forecast horizon.”

U.S. dollar has become the biggest obstacle for gold prices in the short- and long-term, according to J.P. Morgan.

“While supply-demand fundamentals and historical late-cycle dynamics point to higher prices for gold … in the quarters ahead, we acknowledge that as long as the USD continues its recent bullish run, metals prices will generally be hard pressed to break out higher from current levels,” the report said.

J.P. Morgan described a negative correlation between the U.S. dollar and precious metals, adding that the U.S. dollar rose 1.3% in the last four weeks, while gold declined by 0.85% over the same period.

“Our historical analysis indicates that further USD strength would at best continue to cap base metals and at worst lead to a sizeable debasement, with similar consequences likely for precious metals,” the investment bank said.

Despite the threat of the rising U.S. dollar, J.P. Morgan is confident that gold prices will gradually rise and even close in on $1,500 an ounce in 2020.

The bank’s trading advice is to stay long on December 2018 CME gold.

“Our long positions in gold and silver haven’t been profitable overall yet but we maintain the exposure as our overall fundamental view for coming weakness in the dollar has now also synced with the technical view for an intermediate USD setback with precious metals looking set to be one of the main beneficiaries,” the report pointed out.

The latest news to impact gold prices was the Federal Reserve rate hike on Wednesday, which increased the federal funds rate to a range between 1.75% and 2.00%. Gold prices managed to hold above $1,300 an ounce, with August Comex gold futures last trading at $1,302.20, up 0.08%.

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.