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Gold prices can fall to $1,300 an ounce as recession looms - IHS Markit

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(Kitco News) - The threat of a global recession and low inflationary pressures will continue to drag gold prices lower, with the precious metal already vulnerable as volatility continues to roil financial markets, according to one precious metals analyst.

In a telephone interview with Kitco News, said KC Chang, precious-metals analyst at IHS Markit, said that he sees gold prices falling to $1,300 an ounce as the global economy succumbs to the impact of the spreading corona virus.

“Our outlook for gold is much lower when looking at the second half of the year, as investors continue to hoard cash,” he said.

Chang added that if economic projects continue to weaken and are worse than economists are expecting, then gold prices could even fall back to 2015 levels, when gold prices bottom out at $1,050 an ounce. April gold prices last traded at $1,490 an ounce, up 0.80% on the day.

The economic situation has dramatically changed from last summer, Chang said. He explained that last year, the gold market saw a strong rally into this year as the Federal Reserve loosened its monetary policy with an economy still showing positive gains. Chang added that last year, there was the threat of rising inflation in a low-interest rate environment supporting gold.

So far this past month the Federal Reserve has taken unprecedented step to loosen monetary policy, but a recession look inevitable, Chang said. He added that in this environment, inflation pressures are nonexistent

“When five-year inflation expectations fall to 1% like they have, then there is really no urgency to buy gold,” he said.

The comments come as IHS economists forecast a U.S. recession in the second quarter. The economists expect U.S. will decline 0.2% this year, with a 5.4% decline in the second quarter.

“If our economic forecast that includes a severe but brief recession is accurate, inflation is more likely to remain below 2% for several years and the unemployment rate will rise by approximately three percentage points and remain above its full employment level. In such conditions, the federal funds rate would be likely to remain near zero for several years,” the economists said in a report Monday.

Chang said that low real interest rates are probably not enough of an incentive to stop the decline in gold.

With so much wealth destruction in the marketplace, he said that he doubts that investors have enough free capital to diversify into gold.

“You will see some upward price volatility in gold as a safe-haven asset, but many retail and professional investors will be struggling to find the funds to buy gold,” he said.

Along with a lack investor interest, Chang said that gold prices are still relatively high in other currencies, which means physical demand could be limited in the near term.

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