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Gold's Next Rally Will See $1,500 Levels, But Not Until End Of 2020, Says ABN AMRO

Kitco News

(Kitco News) - The yellow metal is done rallying for the moment, but next year will see a new rally that will take prices to $1,500 an ounce levels, according to the Dutch bank ABN AMRO.

Gold saw an impressive rally in June that took the prices to fresh six-year highs of above $1,440 an ounce. After breaching those key levels, gold embraced a natural pause, trading steady around the $1,420 level with August Comex gold futures last at $1,428.00, up 0.09% on the day.

“We now think they have risen too quickly,” ABN AMRO precious metals strategist Georgette Boele wrote in a report published on Friday.

In the short-term, Boele expects to see pressure on gold prices as markets digest the recent rally and the Federal Reserve fails to cut rates as aggressively as markets anticipate.

“Since the start of June prices rallied from just above USD $1,305 to $1,440 per ounce or 10% higher,” Boele wrote. “The prospect of rate cuts in the US and elsewhere has made gold as an investment asset more attractive.”

Gold could be looking at a temporary move down to $1,350 an ounce level with large net-long positions limiting the metal’s upside potential, the strategist added.

“We expect a 25bp rate cut while the market sees a probability of 45% of a 50bp rate reduction. If the Fed only cuts by 25bp at the end of this month then this will probably trigger a profit-taking wave in gold prices, pushing prices towards USD $1,350 per ounce,” she said.

A big surprise to the upside for gold in the short-term could be a sudden drop in the U.S. dollar, which ABN AMRO has priced in only for 2020.

“A sharp weakening of the dollar in the near term (not our base case) could dampen the impact of a smaller Fed rate cut and push gold prices much higher,” Boele wrote.

Next year is expected to be a solid year for gold with prices surging to $1,500 in Q4, Boele pointed out.

“Despite our slightly bearish view for gold prices for the near term we continue to hold a positive outlook for gold prices for 2020. This is because we expect a weakening of the U.S. dollar and general easing of monetary policy,” she said.

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