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Gold eyes $1,620 in 2020 on global de-dollarization theme, geopolitical risks - ANZ

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Editor's Note: 2020 is expected to be another year of significant uncertainty and turmoil. But the question is what asset will emerge the victor when the dust settles from the global trade war, Brexit, recession threats, negative bond yields. It’s a showdown of global proportions, so don’t miss all our exclusive coverage on how these factors could impact your 2020 investment decisions.

(Kitco News) The precious metals sector is likely to outperform other commodities for the second year in a row in 2020, according to the Australia and New Zealand Banking Group (ANZ), which is projecting for gold to rise above $1,600 next year.

“Precious metals look well positioned to outperform other sectors for the second consecutive year in 2020,” ANZ senior commodity strategist Daniel Hynes and commodity strategist Soni Kumari said in the bank’s 2020 outlook.

ANZ sees gold rising steadily throughout next year and peaking at $1,620 in December.

“Our gold model points to USD1,600/oz in 2020. Our model – based on real interest rates, USD and inflation expectations – shows gold’s value at USD1,470/oz. With a slightly weaker USD and only a tepid increase in bond yields, it forecasts gold will hit USD1,600/oz in 2020,” the strategists wrote.

Global themes of de-dollarization and geopolitical uncertainty are a few of the main drivers that will keep gold prices supported, ANZ’s outlook stated.

“Although the uncertainties related to US-China trade and Brexit peaked in 2019, we believe geopolitical and macroeconomic risks will remain elevated next year,” Hynes and Kumari said. “The ongoing theme of de-dollarization should see investor appetite for gold remain strong.”

The U.S. presidential election will be one of the risks to keep a close eye on as it directly impacts the financial markets. “With several possible outcomes, we see room for market volatility. This should set the stage for safe-haven assets to perform through 2020,” the strategists explained.

Also, the rise of populism around the world increases the case for holding gold in your portfolio, the outlook added. “The geopolitical trend toward division and populism will keep generating uncertainty, enhancing the safe-haven appeal of the sector.”

Lower interest rates environmental on a global scale also works in favor of the yellow metal next year. “A pause in Fed interest rate hikes should not diminish investor appetite … [as] steady-to-higher inflation keep[s] interest rate lower in 2020,” the strategists said.

Another part of the equation that leads to gold breaching the $1,600 an ounce level in 2020 is the weaker U.S. dollar, added ANZ.

“USD appreciation is likely to abate, with downside risks rising through 2020 … With a more stable policy setting, the USD is likely to stabilize and trade in a tight range. We expect the EUR to outperform the USD,” Hynes and Kumari wrote.

Asian gold demand will need to be closely watched as well after Indian gold imports fell 53% between July and October of this year amid record-high local prices.

“In 2020, higher investment demand will be required to clear the supply overhang left by weaker gold jewelry demand and leveling-off central bank purchases,” the strategists said.

One of the major risks to higher gold prices remains crowded investor positions, which could trigger a sell-off in 2020. “Elevated speculative positions leave risk of a price set-back,” the outlook highlighted.

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.