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Gold's 'rally is over': Copper to be the star of 2020, says Capital Economics

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Gold's 'rally is over': Copper to be the star of 2020, says Capital Economics

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(Kitco News) Gold’s days near the $1,500 an ounce level are numbered, with prices expected to retreat to $1,350 in 2020 and then drop down to $1,250 in 2021, said Capital Economics in its outlook for next year.

“The rally is over,” wrote Capital Economics chief commodities economist Caroline Bain. “We forecast the prices of gold and silver to end 2020 at around $1,350 and $15.00 per ounce respectively, down from around $1,490 and $17.40 currently.”

The short-term outlook for gold is a little brighter with prices expected to end 2019 at the $1,500 an ounce level before beginning its descent lower.

“For much of this year, the price of gold has benefitted from the economic uncertainty, heightened geopolitical tensions and declining U.S. rate expectations,” Bain said.

Going forward, investors will lose interest in gold as risk appetite recovers amid a less dovish Federal Reserve, rebounding global economic growth, and waning consumer demand, she stated.

“Markets are still anticipating too many rate cuts from the Fed. Meanwhile, a stabilization in government bond yields outside of the U.S. should halt the increase in the level of negative-yielding debt, reducing the investment appeal of gold,” Bain wrote. “We expect a recovery in global economic growth over the course of 2020, which should spur a pick-up in investor risk appetite.”

A recovery in global growth will not be enough to boost weak physical demand for the yellow metal as gold will still be too expensive in China and India, she added. “The recent hike to precious metals import duties in India will be an additional headwind to consumer demand.”

The “star performer” next year will not be any of the precious metals, according to Capital Economics.

“We forecast that the price of copper will rally,” Bain highlighted. “Net-demand proxy suggests that growth in physical copper demand, though subdued, is still outpacing supply … Mine supply growth looks set to contract in 2019 and will probably remain weak in 2020 … We also expect demand to pick up gradually next year.”

In terms of price forecasts, Capital Economics sees prices rising to $6,800 a tonne by the end of next year, then advancing to $7,500 a tonne by the end of 2021 and finally surging to nearly $10,000 a tonne by the end 2025.

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