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Gold’s 'Healthy Year Of Gains': Climbing The Ladder To $1,367 - RBC

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Gold’s ‘Healthy Year Of Gains’: Climbing The Ladder To $1,367 — RBC

(Kitco News) - The next two years will be good to gold, with prices averaging at $1,338 an ounce in 2019 and $1,367 in 2020, according to a new report published by RBC Capital Markets, which sees the metal making steady rather than sporadic gains.

“Gold appears positioned for healthy year on year performance in 2019 … that is less about sudden jumps [and more about] cumulative steps higher (before perhaps finding year-end weakness),” wrote RBC Capital Markets commodity strategist Christopher Louney. “We not only reiterate our 2019 annual average price forecast at $1338/oz, we are also launching our 2020 forecast at $1367/oz.”

Guiding this outlook is RBC’s conviction that investors are no longer ignoring various market risks and are turning to gold for its protection.

“The conversation has shifted from … simple uncertainty (and subsequently ignoring it), to one that recognizes the risks in the market, both big and small. It is this type of environment that we think is conducive to gold and more generalist investors, thus making allocations to gold attractive given its unique characteristics,” the strategist said.

RBC also listed top risks for 2019 and 2020, which largely work in gold’s favor. The risks include a divided U.S. government, trade tensions, inflation trends, slower economic growth, volatility in the equity markets, uncertainty over future rate hikes, and geopolitical risks.

“We remain of the view that macro headwinds have softened, that the fundamental underpinnings are healthy, and that the market narrative has begun to shift in favor of new or increasing gold allocations,” RBC said.

At the end of the day, it all comes down to increased interest in gold and higher demand, the strategist pointed out.

“It is that conversation among gold inclined investors in particular which we think will incite allocations and drive interest in the space. When coupled with softer macro- headwinds, we think gold prices will shake out to $1338/oz on average this year,” Louney said.

Equities and the U.S. dollar will no longer be impediments to higher gold prices, according to the report.

“Equities and the dollar (the latter being the biggest foe for gold for some time now) are at least slightly off their 2018 highs, which when coupled with a return in the negative rolling correlation versus U.S. equities, as well the consistently negative relationship with the USD, should translate to support for gold prices at certain points this year,” Louney said.

The trajectory for gold in 2019 is a steady climb into mid-year, a step back near year-end, and renewed move up into 2020, the RBC report added.

“Our underlying economic thesis for gold from a high level is one absent a significant economic shock and actual risk-off moves, but a growing narrative of worry that uncertainty unfolds into a sort of risk-off hedge that favors a steady increase in gold positioning,” Louney stated. “Through the balance of 2019 and into 2020, we see the market warming up to gold’s long held appeal as a diversifier and store of value.”

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