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No Rally For Gold Until Mid-2019, Says Capital Economics

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No Rally For Gold Until Mid-2019, Says Capital Economics

(Kitco News) - This summer’s deflated gold prices will not receive any significant boost until the second half of next year, said Capital Economics while revising its 2018 year-end forecast from $1,300 to $1,200 an ounce.

Gold’s 2018 downfall is largely the U.S. dollar story, which is set to run its course for the rest of the year, Capital Economics commodities economist Simona Gambarini wrote in the Precious Metals Update on Thursday.

“A preference for the U.S. dollar as a safe haven has weighed on gold prices over the past few months. Given our view that the dollar will remain strong into 2019 and that growth in jewellery demand will continue to fall, we have revised down our end-2018 forecast for the price of gold to $1,200 per ounce,” said Gambarini.

Continued strength in the U.S. dollar and soft jewelry demand for the rest of the year has shifted Capital Economics to a much more bearish position.

“It’s impossible to know exactly how U.S. trade policy will develop, but we think that tensions are more likely to rise than to fall. With this in mind, and given our view that the Fed will raise rates two more times in 2018, we think that the dollar will probably remain well supported,” the note stated.

Higher U.S. dollar is also making gold more expensive in local-currency terms in key emerging markets, such as China and India, where jewelry demand is already low due to lower economic growth, Gambarini pointed out.

Gold trading this week has been uneventful, as prices attempt to stabilizes above recent 12-month lows. December Comex gold futures were last seen trading at $1,219.80, down 0.10% on the day.

But, there is some good news coming for gold investors, according to Capital Economics’ medium-term outlook, which projects a comeback in the second half of next year.

This is based on slower U.S. economic growth estimates and the end to the Federal Reserve’s tightening cycle.

“As the Fed tightening cycle comes to an end in the first half of next year, investors will start to factor in lower rates ahead. This would probably undermine the dollar … and push the gold price up to $1,350 by end-2019,” Gambarini wrote. “By the middle of next year … we expect growth to slow sharply, forcing the Fed to cut rates in 2020.”

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