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Credit Suisse: gold prices to recover as favorable fundamentals take over

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(Kitco News) - Gold prices could continue to face pressure in the near term as some investors still need to raise cash, but then a favorable fundamental backdrop should underpin the precious metal, said Credit Suisse Wednesday.

Gold has declined lately despite a favorable fundamental backdrop for the metal, such as looser monetary policy, lower bond yields and volatility in stocks, Credit Suisse said. The pullback in prices was due to liquidity needs of investors needing cash as so-called risk assets tumbled, analysts said.

“We expect near-term gold prices to remain under pressure for this reason, before rebounding on fundamentals,” Credit Suisse said. “Recall that a similar dynamic occurred at the beginning of the 2008 financial crisis when gold fell ~25% before rebounding sharply and reflecting the loose monetary policy.”

As a result, the bank trimmed its forecast for the first half of 2020 to $1,560 an ounce from $1,600 previously but hiked its 2021 outlook to $1,600 from $1,450 previously.

Bond yields may be the key factor determining future gold-price direction, said Credit Suisse. Gold prices began climbing in 2019 when the U.S. Federal Reserve started lowering interest rates.

“The Fed has now aggressively cut rates to stimulate economic activity in response to the coronavirus outbreak,” Credit Suisse said. “Currently, there is ~US$13 trillion of negative-yielding debt globally.”

Other supportive factors include the potential for a weaker U.S. dollar and increased central-bank demand, Credit Suisse said.

Analysts said they were lowering target prices for gold-mining stocks slightly, but also said this remains a “good entry point.”

Analysts said they were lowering target prices for gold-mining stocks slightly, but also said this remains a “good entry point.”
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