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Equity Market Weakness To Make Gold Shine In 2019 - Citi

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(Kitco News) -Although not expecting to see fireworks in the precious metals sector, analysts at Citi said they like buying gold on any dips as financial and geopolitical risks keep a bid in safe-haven assets in 2019.

“We are moderately bullish on gold over the medium term. The rising frequency of US equity market drawdowns, the gradual unwind of QE, higher overall macro market volatility, and elevated geopolitical risks should all continue to favor gold buying on the dips,” the analysts said. 

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In its base case scenario, the bank sees gold prices pushing to a high of $1,300 an ounce next year with prices averaging the year at $1,265 an ounce. However the bank also sees a 30% chance that gold prices push to $1,400 an ounce by the third quarter of next year and averaging the year at $1,365 an ounce.

“A $1,300-1,400/oz push seems sustainable if US and global equities enter a bear market or there is a substantial boost in EM sentiment and unanticipated US$ weakness on the back of a material U.S.-China trade deal in 1Q’19,” the analysts said.

The biggest threat to the gold market remains the U.S. dollar, according to Citi. However, the greenback could less of a factor to the precious metals market if equity markets continue to push lower.

According to the bank’s latest research, economic uncertainty could be the biggest factor to drive gold prices higher next year. The analysts noted that on average gold prices have risen 7% when the S&P 500 has dropped more than 12%.

Currently, gold prices are trading at their highest level in June as equity markets flirt in bear-market territory; the S&P 500 is down almost 15% from its record highs seen in September. February gold futures last traded at $1.279.60 an ounce, down 0.12% on the day.

As positive as Citi analysts are on gold, they are slightly more bullish on silver. The bank sees silver prices averaging 2019 around $15.70 an ounce, hitting a high of 16$. However, the bank also sees the chance for silver to push to $17 an ounce by the second half of the year.

“The gold-to-silver ratio is extreme and silver’s industrial elements could be more leveraged to global growth upside following further anticipated China easing and trade war de-escalation over the next 3-6 months,” the analysts said.

Although off its recent highs, the gold-silver ratio remains at an elevated level above 84 points. March silver futures last traded at $15.40 an ounce, up 0.62% on the day.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.