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Slowdown In Fed Tightening To Drive Gold In 2019 - Aberdeen Standard Investment

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(Kitco News) - Falling real interest rates and a weaker U.S. dollar will be the most significant catalysts to drive gold prices higher next year, according to one investment firm.

In a telephone interview with Kitco News, Maxwell Gold, director of investment strategy at Aberdeen Standard Investments, said that growing uncertainty in financial markets could force the Federal Reserve to slow down tightening of monetary policy next year.

Maxwell Gold, director of investment strategy at Aberdeen Standard Investments

Gold said that markets heading into Wednesday’s monetary-policy meeting see a 71% chance of a rate hike and are pricing in a modest chance of two rate hikes next year. He added that expectations for interest rate hikes are at their lowest level since the start of the tightening cycle. Only a few months ago, markets were pricing in four rate hikes in 2019.

“The market is uncertain about the step-by-step path of interest rates heading into 2019,” he said. “Any kind of slowdown in the Fed’s tightening cycle is going to be beneficial to gold.”

Gold added that ongoing market volatility will be another major catalyst to drive gold prices higher next year. Although he is not expecting to see an outright recession next year, lower growth expectations should keep a lid on equity markets, Gold said.

“I don’t think we have bottomed in equities and gold continues to look attractive as a diversified safe-haven asset,” he said.

In his latest report, Gold said that his base case is for gold prices to trade in a range between $1,275 and $1,325 in the next 12 months; however, he added that there is a growing probability that the firm’s bull-case scenario comes to fruition, which would see gold prices trade between $1,375 and $1,425.

“I think gold can get back to $1,300, but we are not completely out of the woods yet,” he said. “The U.S. dollar still remains a strong headwind to gold prices.”

However, for gold to break its leash at $1,300 an ounce, inflation has to pick up, he said. He added that markets would need to see inflation push above 3%.

“The current dynamics of the U.S. economy is inflationary; we just need to wait and see how everything materializes,” he said.

Along with the gold market, Gold said that he is also bullish on silver as his firm sees the precious metal trading between $16 and $18 an ounce next year. The comments come as silver has significantly disappointed expectations this past year. Silver prices have declined 14% and the gold-silver ratio has ballooned to multi-decade highs.

He added that the market’s falling silver-mine supply should support prices next year.

“Silver remains cheap to gold and investors could start to see value in this precious metal in 2019,” he said.

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