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Don't Look For Gold Rally Until The End Of 2019 - JPMorgan

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(Kitco News) - Heading into the new year, commodity analysts at JPMorgan continue to warn precious metals investors to not expect too many fireworks next year as trading in gold and silver could is expected to be ho-hum in at least the first half of the year.

In latest outlook forecast, the bank reiterated its neutral call on gold and silver for the first half of 2019, expecting prices to hover within its current range between $1,200 and $1,250 an ounce. It won’t be until the final three months of the year that gold will finally start to shine and make a push towards $1,400.

The analysts said that they see more potential for gold in 2016 as they see an average gold prices of $1,460 an ounce.

In a report published last month, the analysts warned that gold will continue to struggle as rising interest rates will continue to support the U.S. dollar and drive real rates higher, lower gold’s opportunity costs. The bank sees the Federal Reserve raising interest rates four times next year.

“As the Fed continues to tighten, the yield curve should rise and flatten at the same time, eventually inverting sometime in 3Q19. Around this time, the policy rate will likely move into restrictive territory, putting the brakes on further economic expansion,” the analysts said. “Here is where we believe things could get interesting for gold. At this juncture, as expectations for a Fed pause likely begin to build, we would expect real rates to potentially begin to move lower, exciting gold prices.”

The analysts said that safe-haven demand, due to a slowing economy and struggling equity markets could push gold prices up by 18%.

However, until the Fed’s tightening cycle ends, gold will see little momentum, the analysts said. The analysts added that gold’s current safe-haven appeal as equities struggle into year-end is not sustainable.

“We view the equity selloff as largely technical in nature, following the same selling template as in February, and overall we still feel that as long as the inverse equities-bonds correlation holds, the gold price will continue to be dictated by the direction of real yields and the U.S. dollar,” the analysts said.

In the near-term JPMorgan said that there are further risks to the downside as the market is currently underpricing interest rate hikes. They noted that further liquidation of exchange-traded funds could weigh on the market in early-2019.

“The futures market pretty well prices our Fed forecast at the front end of the curve but remains underpriced (market prices 2.7 hikes in 2019) relative to both the median Fed dots (three hikes) and our own projections of four, leaving plenty of room for another round or two of repricing,” the analysts said. “Another major downside price risk is the potential liquidation of a significant accumulation of gold ETF holdings. We believe the recent rebound in ETF flows is very susceptible to a turnaround.”

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