Renewed Demand In China And India To Support Gold Prices In 2019 - ABN AMRO
Georgette Boele, coordinator of FX and precious metals strategy at ABN AMRO, said in a report Wednesday that they are bullish on gold and silver next year as they see renewed interest in the precious metals from emerging markets, specifically India and China, the world’s two largest gold consuming nations.
Looking at 2019, the Dutch bank sees gold prices averaging the year at $1,325 an ounce, hitting a high of $1,400 an ounce by December. The bank is also bullish on silver as it sees prices averaging the year at $16.60 an ounce and rising to $18 an ounce by the end of 2019.
The comments come as gold prices trade near a one-month high. February gold futures last traded at $1,243.80 an ounce.
Boele said that China’s and India’s domestic gold markets are expected to grow next year as the two currencies recover from what has been a dismal year. Although the Chinese authorities have allowed their currency to fall this year, to soften the impact of the ongoing global trade war, Boele said that there is little room for the yuan to go much lower.
“Chinese authorities are very cautious about letting the currency weaken beyond 7.00 versus the US dollar, as the risk is quite high that they would lose control over their currency,” she said. “A weakening of the Chinese yuan beyond 7 versus the US dollar could spur speculation of capital outflows and they would like to avoid that, at least for now. Against that background, we expect that the Chinese yuan will recover in 2019. This should calm investors and improve investor sentiment towards gold.”
Boele said that they also see a rebound in the Indian rupee, which hit an all-time low against the U.S. dollar this summer.
The bank also sees potential for renewed investment demand as they expect to see lower bond yields and a weaker U.S. dollar next year. Boele said that they expect the Federal Reserve will only be able to raise interest rates once next year as the U.S. economy starts to slow down. This will keep real interest rates from rising and have less of an impact on gold’s opportunity costs.
“Going forward, the 2y U.S. Treasury yields will probably rise in tandem with inflation expectations. So real yields will likely not rise. All these factors support our view that the U.S. dollar has peaked and will weaken in 2019 and 2020,” she said. “Therefore, we expect gold prices to rally in 2019.”