'Soggy' Fundamentals Will Keep A Lid On Gold Prices - Macquarie
It is difficult to be overly bullish on gold as there is no new catalyst that could dramatically drive prices higher, Macquarie precious metals analyst Matthew Turner told Kitco News on the sidelines of the London Bullion Market Association’s 2018 precious metals conference.
Turner explained gold embarked on a major rally in the early 2000s because of major shifts in demand. “Central banks started buying gold after being net sellers, investors were buying investment gold through newly launched exchange traded products, and the Chinese started to build its gold exchange,” he said.
“These were three major factors that fundamentally increased demand for gold,” he said. “Right now, we see the supply demand outlook as a little bit soggy. We just don’t know where the next big catalyst for gold is going to come from,” he said.
Turner added that his firm thinks that investment demand could continue to drive prices to around $1,300 an ounce, but the market will be unable to find any solid momentum in the current environment.
The comments come as gold failed to find new momentum to push it above its recent three-month highs. December gold futures last traded at $1,229.50 an ounce, down 0.24% on the day.
In its latest forecasts, Macquarie sees gold prices averaging the year at $1,271 an ounce, down 0.4% from its previous forecast. In 2019, the bank sees prices averaging $1,219 an ounce, down 10% from its previous estimate.
“Our concern increasingly is about [gold’s] ‘fundamentals,’ which are often overlooked but we think are tending towards market surpluses, meaning investor flows have to work even harder to push prices higher,” the bank said in a recent report.
The Australian bank is only slightly more optimistic on silver, which they admit failed spectacularly in 2018. Although the bank has significantly lowered its silver estimates for 2018 through to 2022, they note that the metal is a better value compared to other assets.
“Silver was our top pick of the precious metals for 2018. So naturally, it has been the worst performer,” the analysts said in their report. “With precious metals though, there is always someone willing to hold them at the right price. Silver clearly now has one thing in its favor -- it’s pretty cheap, both relatively and historically.”
Macquarie sees silver prices averaging the year at $15.85 an ounce, down 9% from the previous estimate. For next year, the bank expects silver to average the year at $15.81 an ounce, a 19% drop from its previous forecast.
December silver futures last traded at $14.545 an ounce, down 0.70% on the day.