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Gold, silver prices look vulnerable for rest of the year - ABN AMRO

Kitco News

(Kitco News) - After a strong start to the year, rising volatility sweeping through financial markets appears to be weighing on precious metals, and one international bank sees lower gold and silver prices for the rest of the year.

In a report published Wednesday, Georgette Boele, precious-metal strategist at ABN AMRO, questioned gold’s traditional role as a safe-haven asset. She said that she expects gold prices to struggle for the rest of 2020 as weak global growth weighs on jewelry demand and investors jump into the U.S. dollar as a safe haven.

Boele noted that during the 2008 financial crisis, gold prices dropped 20%. Meanwhile, the U.S. dollar rallied sharply higher as market liquidity dried up.

In its latest report, the Dutch bank now sees gold prices averaging $1,523 an ounce this year, up from its previous forecast of $1,490 but down significantly from current prices. The bank expects silver prices to average around $16.60 an ounce in 2020, down from the previous estimate of $17.10.

The new outlook comes as gold prices struggle to find traction. April gold futures last traded at $1,648.90 an ounce, down 0.69% on the day. Price have dropped 3% from its highs hit earlier this week. Meanwhile, May silver futures last traded at $16.86, down 0.56% on the day.

Looking ahead, Boele, said that gold’s price trend will continue to be impacted by global monetary policy. The gold market pushed to a seven-year high above $1,700 after the Federal Reserve announced an emergency inter-meeting 50-basis-point cut on March 3. However, prices have been unable to hold those gains even as markets price in another 50-basis point cut following the March 18 monetary policy meeting.

“Our view on monetary policy easing for the Fed and the ECB is roughly priced in. If this plays out, the effect will likely be neutral on precious metal prices at current levels,” Boele said. “However, if expectations about monetary policy easing increase further, this would provide support to precious-metal prices. Moreover, aggressive global quantitative easing could limit the downside in gold prices.”

Boele also noted that speculative interest in gold is at an extreme high and this makes it vulnerable to profit-taking sell-offs.

“Investors are still hoping that market panic will send gold prices much higher. We are very cautious. The safe-haven behavior of gold is far from stable as recent weeks have shown and long gold is still a crowded trade,” she said.

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