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Gold To End The Year At $1,440, Says Westpac

Kitco News

Gold To End The Year At $1,440, Says Westpac

(Kitco News) - The gold rally is likely to peak by year-end, reaching a high of $1,440 an ounce in December, according to an upwardly revised forecast by the Australian bank Westpac.

“The big shift is for gold which we now expect to end 2019 at US$1,440/oz and end 2020 at $1,374/oz (they were US$1,330/oz and US$1,215/oz respectively),” Westpac senior economist Justin Smirk said in the July report.

Underpinning these price projections are central banks proceeding with monetary policy easing around the world.

"Increasing expectations for major central bank easing as global uncertainties persist is the broad theme underlying recent market action,” economists at Westpac wrote.

The bank is expecting the Federal Reserve to cut rates by 25 basis points in July and the European Central Bank (ECB) to cut rates by 10 basis points in September. The Reserve Bank of Australia and the Reserve Bank of New Zealand are also on the easing path, noted Westpac.

“A coordinated global easing in monetary conditions now looks assured, supporting market confidence and activity through challenging times and in turn sustaining the current global economic expansion,” the economists explained. “There is cause for the FOMC to cut by 25bps in July and likely follow-up that move with another cut in October or December, depending on the data flow.”

Concerns over global economic slowdown are driving central banks towards easing with Westpac estimating for the U.S. economy to grow 2.4% in 2019 and 1.8% in 2020.

“Come the second half of 2019 and 2020, growth will slow, but a full-year outcome at or a little-above potential remains our base case,” the report stated. “[Fed’s] pair of cuts should be seen as a fine-tuning exercise to ensure GDP growth is sustained at or above trend rather than a full cycle of cuts to fight-off the risk of recession.”

The trade war between the U.S. and China is also far from being resolved, which is impacting global business sentiment and manufacturing, the bank added.

“Underlying issues surrounding market access and intellectual property remain unresolved, and in any case, the uncertainty associated with a lack of an agreement has already damaged business sentiment and seen global manufacturing grind to a halt,” Westpac noted.

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