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Elevated gold prices are not built to last - Natixis

Kitco News

(Kitco News) - Geopolitical and economic uncertainty are helping gold maintain support above $1,500 an ounce, and while there is room for prices to move higher in the short- to medium-term, one bank is not betting on higher prices in the long-term.

In a report published last week, analysts at Natixis increased their gold forecast for the year and see higher prices for the first half of next year but expect that the precious metal will struggle in the second half of 2020.

Bernard Dahdah, precious metals analyst at the French Bank and author of the latest outlook, said that he now sees gold prices averaging the year around $1,400 an ounce with prices pushing back to $1,560 an ounce in the last quarter of the year. For next year Natixis sees gold prices averaging the year around $1,420 an ounce, up from the previous forecast of $1,370.

“Although we have revised higher our price forecast for 2020 this does not reflect a bullish view in light of the current price levels,” Dahdah said.

Dahdah said that he sees higher prices in the short-term as the bank expects the Federal Reserve to cut interest rates two more times this year. His comments come ahead of the Federal Reserve monetary policy decision Wednesday.

The CME FedWatch Tool shows that markets have all but priced in a rate cut mid-week. However, looking ahead to 2020, Dahdah said that the bank expects to end the easing cycle by the second quarter.

“In our view, rate cuts will have ended come Q2 2020, furthermore we believe that as Trump enters the election campaign he will want to boost the economy and as such is more likely to try and get a deal from the Chinese,” he said.

Natixis’ outlook is at odds with market expectation. Markets see a chance that interest rates fall to 1.00% by April 2020.

One sector of the gold market that Dahdah said that he expects to remain strong is central bank demand. He noted that Russia, China and Kazakhstan currently represent about for 48% of official gold purchases this year.

“It is worth mentioning that these countries are gold-producing emerging countries. Furthermore, Russia and China are actively seeking to diversify away from the dollar and as such are expected to purchase gold in the years to come,” he said.

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