Gold To Peak At $1,400 On Risk Aversion By Year-End — Capital Economics
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(Kitco News) - Gold prices will reach a high of $1,400 by year-end before beginning their multi-year decline in 2020 and through 2025 towards $1,250, according to Capital Economics.
This year’s price advance will be spurred by risk aversion returning to the marketplace, economists at Capital Economics wrote in a report published on Wednesday.
“Gold is likely to benefit from economic uncertainty this year. We expect particularly strong interest in North American and European ETFs,” the economists said. “However, the improvement in risk appetite will work against gold in 2020 and 2021. We forecast the price of gold to reach $1,400 per ounce by the end of 2019, before slipping to $1,350 and $1,250 at end-2020 and end-2021 respectively.”
This year’s weak global growth is one of the main drivers for gold, the report noted, pointing to slowing U.S. economy and disappointing outlook in China.
“Global growth to stay weak for longer than most expect. A dovish turn by central banks and stimulus in China will not be enough to boost world GDP growth from its current slow pace of below 3% this year,” Capital Economics stated. “As for EMs, policy stimulus in China is unlikely to generate the strong rebound that investors seem to assume.”
Gold prices have much further to run before beginning to trend down more permanently, the report added.
“Subdued global growth underpins our forecast that the S&P 500 will drop to just 2,300 by the end of 2019. In the past few instances when the S&P 500 has fallen by more than 10%, there have been sharp rises in the price of gold, as investors sought the protection of safe-haven assets,” the economists noted.
A sharp rise to $1,400 an ounce, however, will be followed by a steady drop triggered by a cyclical economic recovery in the U.S., according to the research firm.
“We expect risk appetite to gradually return as the U.S. economy picks up. As such, we see the gold price easing to $1,250 by end-2021.”
June Comex gold futures were last trading at $1,277.90, up 0.05% on the day, after a significant sell-off on Tuesday amid rising risk-on sentiment seen in rallying equities and stronger U.S. dollar.