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Gold To Push Above $1,300 As U.S. Dollar Peaks - Scotiabank

Kitco News

(Kitco News) - A peak in the U.S. dollar and “toxic U.S. debt” should continue to support gold prices, but don’t expect a significant rally in 2019, according to analysts at Scotiabank.

In its 2019 forecast, the bank said that it sees gold prices averaging the year around $1,300 as prices are caught in a $150 range with the peak coming in at $1,350 an ounce.

The analysts said according to gold’s technical picture, “a floor at $1200 is both confirmed and respected.”

The comments come as gold prices struggle to hold recent gains, failing to break through critical resistance at $1,300 an ounce. February gold futures last traded at $1,282.50 an ounce, nearly unchanged on the day.

The firm said that a weaker U.S. dollar will be a major factor in gold’s potential. The bank sees the U.S. Dollar Index averaging 89.4 points this year, down significantly from its current level around 96 points. “Peak dollar is simply behind us,” the analysts said.

“The U.S. twin deficit is a core reason for expected [U.S. dollar] weakness and the thinking that the Fed will be ’handcuffed’ from raising rates too high,” the analysts said in their report.

“Overall, while the increasing ‘short-termism’ amongst investors has ensured it’s been rather easy to look through the public debt issue largely in the U.S., history reminds us that the confluence of risky and unpredictable policies, excessive borrowing and higher interest rates pose a toxic threat. Gold is a real asset and currency hedge against unchecked and massive US and global debt growth,” the analysts added.

The second factor to drive gold will be if uncertainty continues to sweep through financial markets. “The biggest uncertainty investors face is U.S. monetary policy,” the analysts said.

“Overall, gold can mildly rally in a quantitative tightening cycle if the Feds outlook creates enough uncertainty to global risk assets and/or if the Fed remains behind the inflation curve ensuring real rates remain close to zero,” the analysts said. “Gold will suffer if there is certainty around QT and confidence for a soft-landing increases.”

Along with gold, Scotiabank is bullish on silver, outperforming the yellow metal in a weak U.S. dollar environment. The bank looks for silver to average the year around $17 an ounce.

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