Higher prices ahead for gold, metal to average above $1,600 by July, says TD Securities
(Kitco News) Despite crowded trading positioning, the gold bid will be kept alive amid lower real rates around the world, said TD Securities commodity strategists.
“Gold continues to hold strong in the range, with the haven demand driving the marginal price action to the top and bottom of the range. The gold trade is certainly crowded, contributing to the recent range-bound trading, but we expect that investment demand for the yellow metal will grow as the suppression of real rates across the globe will keep the gold bug alive in 2020,” the strategists wrote on Monday.
TD Securities uses its new ChartVision-Hedging Implied Levels (C.H.I.L.) to forecast gold prices.
With gold futures trading above $1,570 an ounce, there is room to move higher, the strategists said.
“A robust and broad timing signal in gold argues for higher prices still. Indeed, TD's ChartVision tool implies that some 59% of all 75 technical signals are currently pointing long, implying strengthening upside momentum in the breadth-based indicator,” they wrote.
This matches up with the bank’s positive outlook on gold, which is based on the Federal Reserve’s willingness to cut if needed but staying pat on rates even if inflation does accelerate.
“This is also in line with Commodity Strategy's outlook for yellow metal, particularly as the Fed's asymmetric reaction function provides a strong impetus to buy gold for those looking to shelter their capital from negative real rates,” the strategists said.
TD Securities sees gold producers seeing the benefit of higher gold prices this year.
“A producer, noting that the future is uncertain, may stand to benefit from locking in the $1,440/oz C.H.I.L. price — which would protect against the formation of a downtrend by this year's end— with a zero cost collar that would allow the hedging manager to participate in gold's expected bull market for the remainder of 2020, up to $2025/oz,” the strategists said.
In its commodity forecasts, TD Securities projects gold to average Q2 at $1,560 an ounce, Q3 at $1,625, and Q4 at $1,650.