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Strong holiday shopping, improved investor sentiment to weigh on gold prices - IHS Markit

Kitco News

(Kitco News) - Gold remains resilient in the face of improving economic conditions, but one analyst warned that positive investor sentiment and a strong holiday shopping season could weigh on the yellow metal by the end of the year.

In an email comment to Kitco News, KC Chang, precious metals analyst at IHS Markit, said that he still sees more downside pressure in gold and reiterated his call for prices to end closer to $1,400 by the end of the year. Chang's comments come as gold continues to hold critical support above $1,450 an ounce. December gold futures last traded at $1,473.40 an ounce, up 0.11% on the day.

“While investors may remain anxious with regards to US-China trade policy, the recent US interest rate cuts and monetary policy stimulus from other central banks will ease financial market conditions in the coming quarters,” he said.

The comments come as the research firm sees worries over an economic slowdown starting to ease. That renewed optimism could even be reflected in stronger holiday shopping, which will kick off in earnest next week.

In a recent report, IHS Markit said it sees holiday retail sales rising to $733.7 billion, a 4.6% increase over last year, and outperform average growth of 3.8% seen over the last 10 years.

However, the analysts added that strong 2019 sales come after a dismal 2018 shopping season.

“Last year’s sales were so poor that even a modest improvement in holiday retail spending would look strong in year-over-year terms. Retail is in a comfortable place, but peak growth is likely in the rear-view mirror,” the analysts said.

Although the ongoing trade war between China and the U.S. has dampened some of the holiday spirit, IHS said that it won’t have a major impact on holiday shopping.

“Consumers are not likely to feel the full force of the tariffs until after the holidays. Most retailers began placing orders for their holiday goods in the summer months, which will allow them to mostly avoid paying the higher tariff rates that went into effect in September,” the analysts said.

Although this year’s holding shopping season is expected to be positive, IHS said that next year could be difficult.

“In 2020, tighter labor markets will result in a slower pace of hiring and consumer confidence is likely to recede from its elevated level as economic growth and the stock market cool. Tariffs could begin to bite as well, eroding consumers’ willingness to spend,” the analysts said.

Turning back to gold, Chang said that not only is improving investor and consumer sentiment taking momentum away from the precious metal, prices are still high enough to deter some investors from jumping into the market.

“Gold's 13.7% year-to-date price gain should dissuade physical retail and investment demand,” he said.

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