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Commerzbank Sees $1,500/Oz Gold By End Of 2019

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(Kitco News) - Commerzbank looks for gold to rise to $1,500 an ounce by the end of 2019, according to a research report released on Friday.

Analysts made the prediction even as gold was slipping due to a strong U.S. jobs report. As of 10:30 a.m. EDT, spot gold was trading $24.90 lower to $1,390 an ounce.

“Even if some short-term setbacks cannot be ruled out following the recent steep price rise, the environment for gold remains positive,” Commerzbank said. “The still-low interest rates and numerous political risks are likely to generate further investment demand and thus counterbalance the weaker physical demand in Asia. In addition, our currency strategists expect a weaker US dollar, as the Fed has significantly more scope for interest-rate cuts than the ECB [European Central Bank].

“We are therefore revising our gold price forecast noticeably upwards and expect a price of $1,500 per troy ounce by year’s end (previously $1,400). We envisage another – albeit moderate – price rise in 2020.”

Commerzbank noted that markets are expecting lower interest rates not only from the U.S. Federal Reserve, but from the European Central Bank as well. Thus, bond yields have fallen in both the U.S. and Europe.

“Real interest rates on U.S. government bonds with a maturity of two to five years are already negative,” Commerzbank said. “In Germany, nominal bond yields with durations of up to and including 15 years are in negative territory. This now also applies to the nominal yields of an increasing number of bonds issued by other euro-zone countries. Even in southern European countries, bond yields are already below zero in some cases.

“Worldwide, $13.4 trillion worth of bonds now show a negative yield, exceeding the previous record from June 2016 by far. The resulting hunt for yield is prompting investors to switch to other asset classes, which explains the soaring stock markets despite the bleak economic outlook and the simultaneous rise in gold prices.”

Analysts also cited recent tensions between the U.S. and Iran as supportive for gold. The latest flare-up occurred when Iran shot down an unmanned U.S. military drone.

Investment demand has picked up, Commerzbank continued. Holdings of gold by global exchange-traded funds rose by nearly 110 tonnes in June, the biggest monthly inflow in three years.

Physical gold demand in the key consuming nations of India and China has been hurt by high prices in local currencies. However, Commerzbank continued, central-bank gold buying remains robust.

Commerzbank also looks for silver and platinum to rise into year-end, but for palladium to pull back. Each has heavier industrial uses than gold, and worries about the global economy have thus dented some of the enthusiasm for platinum and silver, Commerzbank said. Palladium has held up, however, on expectations for increasing auto-emissions standards in key markets to mean more demand for the metal in catalysts, analysts said.

“We maintain our price forecasts for silver and platinum and continue to expect a silver price of $16.50 and a platinum price of $950 per troy ounce at the end of the year,” Commerzbank said. As of 10:30 a.m. EDT, spot silver was at $14.91 and platinum at $802.

“The palladium price correction we expect will probably take place somewhat later, which is why we have revised our year-end forecast upwards to $1,350 per troy ounce,” the bank said. “However, this would still be about $200 less than current price levels [of $1,543 at 10:30 a.m. EDT].”

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