Gold prices to 'comfortably break through $1,800' - Metals Focus' Newman
(Kitco News) - Gold prices should “comfortably break through $1,800 an ounce” whenever the sharp rally in equities stalls, while palladium could end up the strongest of the precious metals in 2020, said Philip Newman, director and a founding partner with the London-based consultancy Metals Focus.
Gold bounced sharply from its mid-March lows as central banks slashed interest rates and launched quantitative easing, while governments undertook massive stimulus measures, in an effort to combat an economic slowdown prompted by the COVID-19 pandemic. However, gold has been largely range-bound for nearly two months now.
“The QE is acting a bit as a double-edged sword to gold,” Newman said in an interview with Kitco News this week.
On the one hand, QE is “huge positive” for gold since it means a low “opportunity cost” of holding the metal, he said. This refers to any interest income lost by holding a non-yielding asset such as precious metals instead of bonds. However, Newman continued, the stimulus also triggered a swift recovery in equities, which in turn became “quite a headwind” for gold.
Ultimately, Newman said that he is bullish on gold. For one thing, the relief rally in equities is likely to eventually run out of steam. Further, he said, the economy still faces challenges, one of which is the potential for a second wave of COVID-19 infections.
“We will see a rotation or acceleration into precious [metals], particularly in gold,” Newman said. “That will help gold later this year to break out of that range.”
He commented that when gold ran up to its record high above $1,920 an ounce back in 2011, the market was in “bubble-like conditions” that did not last long before the buying dried up. But in the current situation, many more economies around the globe have been impacted, meaning a recovery will take longer, in turn meaning gold buying should be more sustained.
“We think it will carry through in late 2020 into 2021,” Newman said. “Of course, it won’t be a straight line. You will have bouts of profit-taking, as you would expect, as well as investors buying into momentum as well. I think it will comfortably break through $1,800 an ounce.”
Institutional investment demand has been strong and will be a key factor for the yellow metal, considering consumer demand has been weak in key Asian nations, Newman pointed out. Imports into India have dried up, with jewelry sales hit by both lockdowns that have closed shops, as well as high prices in rupee terms.
“We could easily see new record high [gold prices] in rupee terms in the back of this year,” Newman said. “So I think you’ll see some physical markets struggling because of the price. But the key driver remains institutional investment in the market.”
Meanwhile, Newman said palladium is the precious metal that he is the most bullish on for the remainder of 2020. Palladium is an industrially oriented with metal, with the bulk of annual supply used for catalytic converters in automobiles. Prices hit record highs early in the year, but then plunged on worries that the pandemic hit to the global economy would hurt industrial demand.
Newman said Metals Focus expects a modest structural supply deficit for the year. However, he said, the year also will be one of two contrasting halves – with demand suffering in the first half of the year, but improving in the second half as factories reopen.
“That tightness will return in the marketplace for palladium,” Newman said. “We could see palladium hit new highs in early 2021, in our view.”
Newman said he also looks for silver prices to improve, perhaps getting up to $21 an ounce, with the gold-silver ratio declining, meaning silver outperforms gold. However, any pickup in a U.S.-China trade war may limit silver’s upside due to potential for less industrial use, Newman said.