'Meaningful' Gold Rally Is A Late-2019 Story - TD Securities
“Any meaningful rally is likely a story for late 2019,” TD Securities head of global strategy Bart Melek wrote in the outlook published on Monday. “The US dollar's strength relative to G10 and EM currencies is likely to remain a significant headwind that will suppress positioning for gold bugs. We expect prices to be well contained, before trending into the $1,300s in the latter part of 2019.”
The U.S. dollar will remain supported in the short-term amid the U.S.-China trade dispute, which will likely take most of next year to resolve, and the Federal Reserve (Fed) monetary policy tightening, which will continue to put pressure on the emerging markets, the outlook said.
Yet, the U.S. dollar’s “best days are nearing,” noted Melek, which is key for the yellow metal that has a negative correlation to the greenback.
“[This] should remove a significant headwind for gold and friends,” the head strategist wrote. “While the growth story offered the USD some legs into the summer just as the ECB got cold feet, the severe flattening of the U.S. yield curve and weaker stocks and are major headwinds for a sustained rally in the greenback. This should again redirect capital into gold, which suggests the highly correlated, more volatile silver and platinum should also do well.”
In the near-term, however, TD Securities sees only range-bound trading, with gold stuck between the $1,190 and the $1,240 levels.
“USD strength relative to G10 and EM currencies, particularly CNY, has driven gold sharply lower this year, and will serve to keep prices from breaking out into early-2019,” Melek said.
Aside from the U.S. dollar weakening, gold will also need to wait until other G10 central banks begin to seriously tighten their policy relative to the Fed, the outlook pointed out.
“Continued concerns that the Fed is set to hike rates above neutral, as implied by the dots, are also very much responsible for increasing opportunity cost expectations that have kept bids away from gold, silver and platinum. Fed policy also played a very important role in creating problems in the EMs and lifting the USD,” Melek wrote.
TD’s overall 2019 global macro outlook depends on inflation and growth maintaining momentum as stimulus from “the U.S. fiscal policy and ECB monetary easing fades.”
“Threading the needle is needed to see just enough risk sentiment to support renewed convergence trends in markets. Less accommodative policies means we are no longer on easy street, but nor do we need to end up on skid row,” TD Securities said.