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Rebound in global economy will weigh on gold and silver prices in 2020 - Capital Economics

Kitco News

(Kitco News) - The gold market is attracting renewed investor interest as prices push to their highest level in seven years; however, one firm is not convinced that the rally can last.

In a report published Wednesday, Alexander Kozul-Wright, commodity economist at Capital Economics, said that although gold and silver prices could continue to push higher in the near-term, a recovery in the global economy is expected to weigh on the precious metals by the end of 2020.

Kozul-Wright, reaffirmed the U.K. research firm’s forecast for gold prices to fall to $1,400 by the end of the year. Capital Economic’s forecast for gold represents a decline of roughly 14% from current levels. April gold futures last traded at $1,622.70 an ounce, up 0.68% on the day. 

“If the epidemic can be contained, we maintain that a rebound in global economic growth (due to the lagged effects of synchronised monetary loosening in 2019) will reduce safe-haven demand and lower prices for both metals,” he said in the report.

Capital Economics’ outlook is relatively in line with the Federal Reserve — the central bank sounded relatively optimistic in its January monetary policy meeting minutes.

“Participants generally saw the distribution of risks to the outlook for economic activity as somewhat more favorable than at the previous meeting, although a number of downside risks remained prominent,” the minutes said.

The analyst also said that U.S. Treasury yields are expected to move higher and out of negative territory as growth prospects improve.

Kozul-Wright, added that soft jewelry demand in China and India will weigh on prices later in the year.

Although still bearish on silver, the U.K. firm is slightly more optimistic.  Kozul-Wright reiterated Capital Economics’ call for silver prices to end the year at $16.50 an ounce. The research firm’s forecast represents a decline of 10% from current prices; March silver futures last traded at $18.35 an ounce, up 0.21% on the day.

Kozul-Wright said that he is slightly more optimistic on silver as a recovery in the global economy should support industrial demand for the precious metal.

“We anticipate that a gradual pick-up in global growth will benefit silver demand more than gold, owing to silver’s stronger price correlation with the business cycle,” he said. “This is particularly true in consumer electronics, which account for one quarter of silver’s end-use.

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