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New Fed easing cycle to push gold above $1,600 in 2020 - BNP Paribas

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(Kitco News) - Gold prices will continue to push higher as the Federal Reserve embarks on a new easing cycle, according to BNP Paribas.

In an environment of below zero interest rates, the French bank is increasing its price forecast for gold and silver. In a report published Tuesday, Harry Tchilinguirian, head of commodity research at the French bank, said he sees gold prices averaging the fourth quarter at $1,510, a 10% increase from its June forecast.

Looking ahead, the bank expects gold prices to push above $1,600 in the first quarter of 2020 and average $1,560 an ounce, an increase of 9% from its previous forecast.

Tchilinguirian, is also bullish on silver as he sees the metal averaging the fourth quarter around $16.95 an ounce, up nearly 10% from the bank’s June forecast. Silver prices are expected to average the first quarter of next year at $18.50. For 2020 the precious metal is forecast to average the year at $17.95 an ounce, up more than 8% from the previous forecast.

BNP’s bullish estimates come as gold prices are holding steady near last week’s six-year highs. December gold futures last traded at $1,551 an ounce, up more than 1% on the day. Meanwhile December silver futures last traded at $18.96 an ounce, up more than 3% on the day.

Tchilinguirian said that the yellow metal’s price momentum could pick up following the Federal Reserve’s monetary policy decision later this month.

“Our economists expect the Fed to initiate a ‘patient’ easing cycle, moving from insurance cuts to accommodation as US economic growth slows,” the analyst said. “We expect four 25bp rate cuts between September 2019 and June 2020. As real rates move into negative territory in response, we expect gold to rise significantly.”

The bank expects that U.S. interest rates could fall to 1.25% by June, which would be in line with current market expectations.

Tchilinguirian said that with U.S. interest rates and bond yields expected to fall further, gold will be an attractive safe-haven asset for investors looking for insurance against further financial market turmoil.

“Safe haven demand has risen and is likely to grow further with rising expectations of economic deceleration given the state of play of US-China trade tensions. The trade war is unlikely to be resolved quickly,” he said.

But gold is more than just an insurance play in an environment of growing uncertainty; Tchilinguirian added that in the second half of next year inflation fears from the Fed’s easing policies will be a significant factor that will continue to drive gold prices higher.

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