The gold rally is over but prices will hold $1,500 this year - Capital Economics
(Kitco News) - The gold market has been on a wild rise the last four months, but according to one research firm as the summer winds down so will the rally in precious metals markets.
In a report Wednesday Franziska Palmas, assistant economist at Capital Economics said that the firm is upgrading its year-end target for gold and silver; but she added that the price has peaked for the year.
The British research firm sees gold prices ending the year around $1,500 an ounce with silver holding around $18 an ounce, up from the previous estimate of $1,400 and $16 an ounce, respectively.
“Weakening global growth, high risk aversion and low interest rates should keep prices elevated, but they are unlikely to provide a further boost given that they are, for the most part, already accounted for,” Palmas said.
The comments come as gold and silver test critical support levels, sliding from its last month’s multi-year highs. December gold futures are currently testing support around $1,500 an ounce; meanwhile silver is holding support above $18 an ounce.
Looking further out, Palmas said that they don’t think gold and silver will be able to hold its current prices. Capital Economics see gold prices falling to $1,350 an ounce by the end of 2020 and silver sliding back to $15 an ounce.
Bond yields are a major factor behind the firm’s updated forecast. Palmas said that she expects bond yields to push higher as investors become disappointed with global monetary easing policies.
The CME FedWatch Tools shows that markets are pricing in 100 basis points of easing by March 2020. However, Palmas said that Capital Economics expects that the Fed will only lower rate two more times this year and remain on hold through 2020.
Capital Economics also thinks that negative bond yields in Europe and Japan are unlikely to go lower. Palmas said that central banks will be reluctant to lower interest rates as significant economic fears start to recede.
“While we think that global growth will remain weak next year, we are not forecasting the outright global recession that seems to be currently anticipated by the markets,” she said.
Palmas said that they are also expecting central banks to cut back on gold purchases next year. In the last two years central bank demand for gold has been unprecedented. Last month the World Gold Council said that central banks bought 374.1 tonnes of gold in the first half of 2019 – “the largest net H1 increase in global gold reserves in our 19-year quarterly data series,” the analysts said in the report.”