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Gold price to end the year at $1,700; physical demand to remain strong – ABN AMRO

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(Kitco News) - What a difference a month can make as one international bank has revised its year-end gold price forecast as central banks and governments continue to throw trillions of dollars into the global economy that has ground to a halt because of the COVID-19 pandemic.

In a report Thursday, Georgette Boele, precious-metal strategist at ABN AMRO, said that the stars appear to be aligning for the gold market. She added that she now sees gold prices ending the year at $1,700 an ounce.

The comments come as gold prices are ending Friday significantly down from its 7.5-year highs hit at the start of the trading week. June gold futures last traded at $1,696 an ounce, down 2% on the day.

Looking at expected price action for the rest of the year, Boele said that she sees five factors supporting gold prices through the rest of the year: aggressive central bank quantitative easing, negative yielding government bonds, interest rates remaining close to zero and rising fiscal deficits.

“Investors buy gold because of monetary policy easing, because it is not a negative yielding investment, and because the yield difference between gold and the US dollar has declined to almost zero.

However, it’s not all bullish news for gold prices; although Boele said that she sees higher prices through the rest of the year, she warned that markets will remain volatile.

“Even though we recognize that the drivers are supportive for gold prices, we don’t expect another strong rise in prices. In fact, we still expect another wave of risk-off to support the U.S. dollar and to weigh on gold prices,” she said. “As soon as we experience another wave of risk-off as we expect, it is likely that gold prices will decline again.”

The Dutch bank’s outlook also does not bode well for physical bullion investors. Boele said that she expect to see strong investment demand for physical metal, putting pressure on an already tight market.

“If an investor is worried about a collapse of the financial system or that fiscal deficits are unsustainable, this investor will likely opt for physical gold and is not that price sensitive,” she said. “We think that investors will probably try to switch more into physical gold, meaning that the premium between physical gold and the spot could remain high.”

Investors are already seeing unprecedented premiums for bullion gold and silver coins. The global supply-chain in the precious metal sector has been crippled because of the coronavirus.

Wednesday, the U.S. Mint said that it was shutting down its West Point facility due to growing risks of COVID-19. Other mints and refineries around the world are working at reduced capacity and haven’t been able to keep up with the growing demand.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.