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Fundamentals to drive gold prices to $1,650 within 12 months - TD Securities

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Fundamentals to drive gold prices to $1,650 within 12 months — TD Securities

(Kitco News) Slowing global growth and geopolitical tensions will force the Federal Reserve to introduce more cuts in 2020, which will drive gold to $1,650 next year, according to TD Securities.

The bank has been bullish on gold throughout the year. In its latest forecast, TD Securities estimates gold at $1,550 in Q1 2020, $1,575 in Q2 2020, $1,625 in Q3 2020, and $1,650 in Q4 2020.

“The global economy is slowing, weighed down by trade and recent tightening, with Germany only one quarter worth of data away from a technical recession — a US-China ‘deal or no deal’ notwithstanding,” commodity strategists at TD Securities wrote this week. “It is also likely that after beating expectations since late-June, we are likely at a local maximum as markets have likely adjusted their expectations too positively, we are now due for disappointments on the data front.”

Lower growth and geopolitical tensions are likely to produce a more dovish Federal Reserve policies with rate cuts going into 2020, the strategists added.

“This short-term repo market turmoil prompted the U.S. central bank to inject just over $140 billion worth of liquidity into the market with a promise of more. The associated volatility before the intervention and the resulting speculation of systemic issues that may make it necessary to permanently expand the Fed's balance sheet, should also help to keep gold bid,” they said.

The bank’s strategists advise tuning out some of the headline-driven noise and focus on the long-term fundamentals, which point to higher gold prices.

“Some fifteen trillion dollars worth of investment grade paper is yielding negatively and there is downside pressure on U.S. rates as investors aggressively seek yield,” they wrote. “The combination of some 75 technical analysis trading signals suggests that 43% of signals are still tilted towards the long side in gold.”

The market’s risk appetite will also wane towards the year-end and into 2020, TD Securities pointed out, noting that there is a rising risk of another ‘earnings recession’ similar to the one in 2015-2016.

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