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CPM Group Sees Gold Averaging Near $1,300/Oz In 2019

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(Kitco News) - CPM Group looks for gold prices to rise next year as the Federal Reserve slows its pace of U.S. interest-rate hikes, yet the consultancy does not expect the yellow metal to run away to the upside either since the economy will remain strong.

CPM Group looks for gold to get up to $1,300 an ounce in the first quarter and average $1,295 to $1,300 for the year, said Rohit Savant, director of research for the consultancy, in an interview with Kitco News.

Demand for gold should be strong in the first quarter due to seasonal factors, tied to buying around celebrations in key gold-consuming nations, he said. Further, he continued, the Fed is likely to signal some kind of slowing in the pace of interest-rate hikes in the U.S.

“That should be positive for the precious metals,” Savant said. “But with all of that said, I don’t necessarily see precious metals going up very sharply.”

The consultancy’s average gold forecast is a little more than 2% higher than for 2018, Savant said. Silver is seen averaging $15.20 to $15.25 in 2019, including $14.85 in the first quarter.

Gold should benefit in several ways if U.S. economic growth and monetary tightening slows, Savant explained. For starters, an end to rate hikes may stem the rise in the U.S. dollar, which helps gold since the metal moves inversely to the greenback.

“If interest rates are not going to go up as much as expected, that is going to weigh on the dollar,” he said. “If U.S. growth slows, that will weigh on the dollar. We don’t necessarily see the dollar declining very sharply, but these factors are headwinds for the dollar.”

Savant called for “a little bit of weakness on the dollar, but not a whole lot.” For one thing, he pointed out, a number of other countries are still facing either political uncertainty or softer growth, which will keep their currencies from gaining rapidly on the greenback.

The stock market may be more sideways next year, which may also support gold and silver demand, Savant added.

So what will limit the upside?

“We still have an economy that’s doing fine globally,” Savant said. While economic growth may slow, it will still remain healthy overall, he continued.

“That will hold down any safe-haven buying. We do expect it [gold] to go up. We just don’t expect investors to go crazy buying gold next year.”

However, he continued, the pace of investor buying may very well pick up in 2020 and 2021.

Meanwhile, CPM Group sees some weakness setting into palladium in the second half of 2019. Spot metal climbed to a record high near $1,263 in December. The consultancy looks for palladium to average $1,120 next year, Savant said. The main industrial use for palladium and sister metal platinum is catalytic converters in motor vehicles.

CPM Group projects a supply/fabrication demand deficit for palladium next year, although a surplus for platinum. Since autumn 2017, this helped palladium move to a price premium over platinum, whereas historically platinum held the upper hand.

“Among the things that could work against palladium next year, you have auto markets in China and the U.S. slowing down,” Savant said. “You have demand from the electronics industry slowing down.”

This in turn could prompt some palladium investors to exit from the market, Savant continued.
“We have [palladium] going down from the second quarter onwards,” he said.

However, the consultancy sees sister metal platinum rising to an average of around $870 an ounce in 2019.

“After some of the weakness in platinum and strength in palladium, you are probably going to start seeing some substitution in auto catalysts…back toward platinum, which should be supportive of prices,” Savant said.

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