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TD Securities ups gold forecast, sees $1,700/oz average in 4Q

Kitco News

(Kitco News) - TD Securities has hiked its gold forecast, looking for the metal to average $1,700 an ounce in the fourth quarter and potentially trade as high as $1,800 at some point.

The Canadian firm remains upbeat on the metal despite last week’s weakness, which TDS largely attributed to selling to raise money to meet margin calls in other markets as equities and other so-called risk assets plunged. TDS now looks for gold to benefit from further loosening of monetary policy.

Gold prices hit a seven-year high around $1,689 an ounce at the beginning of last week, but then tumbled all the way to $1,563 by Friday despite what TDS described as supportive developments in interest rates, bond yields and moves in the U.S. dollar.   

“We hypothesize that the sharp decline can be traced to liquidity issues in the broad market,” TDS said in a report issued late Monday. “The yellow metal was likely sold to provide funds to cover margin calls on collapsing [leveraged] equity positions.”

Silver also slumped, prompting TDS to take a profit on its bullish position, the firm said. The white metal was hurt not only by the same factors pressuring gold but also because of its role as an industrial metal, TDS said.

However, TDS sees better days ahead for gold and silver, saying gold “has long written all over it” and silver should follow.

“Since TDS sees two 25-bps [25-basis-points] Fed funds cuts, one in March followed by another in April, as in insurance against the negative effects of the coronavirus outbreak, we have upgraded our gold forecast and see the yellow metal to average $1,700/oz in Q4-2020, with a high likely north of $1,800/oz,” TDS said. “And, we don’t see a material correction, unless the big picture changes fundamentally.

“For now, the risk is to the upside as it looks like major economies are planning to peruse a coordinated effort to add stimulus, which should lower real rates even more. At the same time, it seems governments are ready to bail out the economy and the market at all costs, which gives rise to unconventional monetary policy, aggressive fiscal stimulus and possible monetization.”

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