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Bank of America lukewarm on gold prices in 2020

Kitco News

(Kitco News) - A goldilocks year for U.S. economic growth and inflation will create lukewarm interest in gold, according to Bank of America Merrill Lynch (BoAML).

In its outlook published last week, the bank said that it is neutral on gold and silver, expecting prices to average 2020 at $1,494 and $17.54 an ounce, respectively. The bank’s average gold forecast is about 1% from current prices as February gold futures last traded at $1,475 an ounce; at the same time, the bank’s silver forecast is 3% higher from current levels; March silver futures last traded at $16.86 an ounce.

In an interview with Kitco News, Michael Widmer, precious metals strategist at BoAML, said that it is difficult to get excited about gold next year as it appears the dovish Federal Reserve monetary policy has run its course.

“Gold is lacking a catalyst that will drive prices higher in 2020,” Widmer said. “It’s all about interest rates. I think we would need to see renewed dovishness in central banks to push gold marginally higher.”

However, BoAML is not expecting to see major fireworks in financial markets next year even as they see the U.S. central bank cutting rates one more time in the second half of 2020. The bank’s outlook is in line with market expectations as the CME FedWatch Tool shows markets pricing in a more than 50% chance of a rate cut by December.

Looking at growth, the bank said that it sees the U.S. economy expanding by 1.7%, which will be enough to support continued growth in the labor market, but not strong enough to force the Federal Reserve to raise interest rates.

Meanwhile, inflation pressures are expected to hover around 2%. The bank sees the yield on 10-year bonds holding steady at around 2%.

“Economic conditions are improving so there is more ambivalence to interest rates right now and that is negative for gold,” he said. “When you put this all together it is difficult for gold to make any major headway.”

One of the reasons why BoAML remains optimistic on the U.S. economy is a potential end to the trade war between the U.S. and China.

“Trump has a strong incentive to strike a deal before the 2020,” said Ethan Harris, head of global economics at BoAML. “Even if there isn’t an end to the trade war there will at least be a cease-fire ahead of the election.”

The bank also sees a low chance of the U.S. falling into a recession during an election year.

“There is enough political will and enough tools to avoid a recession,” said Michelle Meyer, head of U.S. economics at BoAML.

One positive factor that will support gold next year is a top in the U.S. dollar. Although the greenback has room to run higher, the bank thinks that it is currently overvalued.

“If progress materializes as we expect, the dollar can start weakening as green shoots externally spur a re-calibration of global monetary policy,” the bank said in its outlook forecast.

While Widmer is agnostic on gold in 2020, he is a little more positive on silver. He added that silver market could see higher prices next year as industrial demand picks up as part of a global reflation shift.

“Fundamentally, silver looks a lot better than gold,” he said.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.