ICBC Lowers Gold Forecast, Sees Prices Averaging $1,299 In '18
(Kitco News) - Despite the looming threat of a global trade war, financial markets have been relatively calm; with this background, coupled with a stronger U.S. dollar, it is not surprising that gold prices dropped 6% in the second quarter, according to the world’s largest bank as it lowers its gold outlook for 2018.
However, despite gold’s lackluster performance in the first half of the year, Marcus Garvey, senior manager at ICBC Standard Bank still see some potential for gold in the second half of the year.
In a report Monday, Garvey said that he now sees gold prices averaging the third quarter at $1,260 an ounce with prices pushing higher in the fourth quarter, averaging $1,300 an ounce. For the year, the bank now sees gold prices averaging $1,299 an ounce, down slightly from its December forecast of $1,312.50 an ounce.
Gary’s updated forecast comes as gold continues to struggle to attract a bid in the marketplace. August gold futures have fallen back to last week’s one-year low with prices last trading at $1,238.70 an ounce, down 0.20% on the day.
Garvey noted that the U.S. dollar remains the dominant factor for gold but that there are signs that the currency’s surging momentum will come to an end.
Garvey noted that the rally in the greenback is more about economic weakness in other nations than about U.S. dollar strength. He explained that at the start of the year there was a significant bullish positioning behind the euro and bearish sentiment behind the U.S. dollar. The dollar has benefited as markets have repriced growth expectations in Europe, he added.
“Coming into 2018, investors were significantly overweight the Euro but, as the region’s growth failed to meet bullish expectations, not only has length been cut but also shorts added,” he said. “Investors may not now be net long the dollar – so there is scope for the move to run further if fundamentals justify it – but the market’s lopsided dollar short has at least been cleaned up.”
Garvey said that higher inflation, as a result of U.S. government global trade policies, could continue to support the U.S. in the near-term as investors raise their expectations for tighter monetary policy; however, he added that in the current environment higher interests rates aren’t a given.
“As we have detailed previously, our major concern about the current US business cycle is the extent to which it has been driven by consumers spending more at the expense of saving less,” he said. “We therefore remain skeptical about the Fed’s ability to deliver on its dot plot because consumer spending growth is likely to come under pressure from a combination of higher interest rates and unexceptional real wage increases.”