Fading Rallies: Gold's Summer Peak To Elude Markets For Another 5 Yrs - Capital Economics
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(Kitco News) - Gold’s rally to above $1,450 an ounce marked a peak in prices for the next five years, according to Capital Economics, which has turned from bullish to “cautious” on precious metals.
After hitting fresh six-year highs this summer, gold’s price outlook is looking flat and tilted towards the downside, economists at Capital Economics wrote on Monday.
“The recent rally has been (slightly) overdone … Gold prices will stagnate, rather than rise, over the remainder of 2019 as they face two headwinds that offset these bullish factors,” the economists said. “From next year, we forecast that the price of gold will decline as monetary easing and a return of investor risk appetite prompts a cyclical economic recovery.”
The two major obstacles to higher gold prices in the long term will be a less aggressive monetary policy easing in the U.S. and weaker Asian demand, Capital Economics said in its latest metals outlook.
“The market should start to price in a shallower rate of U.S. interest-rate cuts. Second, we expect Asian physical demand to dwindle given the rise in prices and the recent increase in India’s duty on gold imports,” the report stated.
Yet, it will not be a major sell-off next year, with prices remaining solidly above the $1,350 level throughout 2020 as some crucial drivers remain in place, including increased central-bank demand and a drop in global equities, Capital Economics said.
“We suspect that central banks will buy more gold in 2019 than in any year since the end of Bretton Woods. Underpinning this is a continued drive by Russia and China to diversify their reserves,” the economists said. “What’s more, we forecast a sharp drop in global equity prices this year. In particular, we expect the S&P 500 to fall back from recent all-time highs and end this year at 2,500. The drop in equity prices should spark safe-haven flows.”
Based on this forecast, Capital Economics looks for gold prices to average $1,400 in 2019, decline to $1,350 in 2020, and then hit a low of $1,250 in 2021 before rising back towards $1,350 by 2025.
Silver’s rally to above $16.60 is also ready to “stall,” according to Capital Economics.
“We expect silver prices to outperform most industrial metals in 2019. However, in 2020, it will be the opposite story as the price of silver falls, while industrial metals gain from a rise in risk appetite,” the economists noted.
Silver is expected to average at around $15 an ounce in 2020 and 2021 before rising back up to $16 in 2025, the updated forecast projected.