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Gold To See ‘Friendlier’ Macro Drivers In Q4, Says This Analyst

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Gold To See ‘Friendlier’ Macro Drivers In Q4, Says This Analyst

(Kitco News) - The macro environment will finally work in gold’s favor in the final quarter of this year, one long-standing gold bull said.

“Looking ahead, I expect the macro backdrop for gold to turn friendlier in Q4 2018, principally because I see two factors coming at play in the final quarter of the year,” Metal Bulletin precious metals analyst Boris Mikanikrezai wrote in a Seeking Alpha post.

The reason behind Mikanikrezai’s optimism is that two of gold’s main downward drivers — the U.S. dollar and U.S. real rates — will lose some traction in Q4.

“The dollar and U.S. real rates are the key macro drivers of gold prices, as evident in the strong negative co-movement between spot gold prices and the dollar and U.S. real rates,” Mikanikrezai said.

But, things will look different in this final quarter partly due to the U.S. fiscal situation, he noted.

“I expect the market to come to the realization that the U.S. fiscal stimulus, which hitherto was dollar-positive, is, in fact, negative for the dollar due to the resulting deterioration of the U.S. fiscal position,” the analyst wrote.

Also, the Federal Reserve is likely to change its position to a more accommodative one, Mikanikrezai pointed out.

The Fed will likely be forced into being more cautious going forward due to the US-China trade dispute implications, which could negatively impact the U.S. economy, he added.

Also, the continuous U.S. dollar rally could trigger “an ‘ugly’ deleveraging in the EM world and produce negative spillovers for the U.S. economy,” encouraging the Fed to take a step back from hiking rates.

“Against this, I think that the dollar and U.S. real rates are due to take a breather in Q4 2018, which should stimulate the monetary demand for gold, pushing spot gold prices and BAR higher,” Mikanikrezai explained.

On Wednesday, gold prices saw a modest rally, with December Comex gold futures rising to $1,196.70, up 0.44% on the day as the U.S. stock market saw some significant losses, with the Dow Jones Industrial Average falling more than 500 points. Worst five-day slide in equities in nearly two years.

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