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Gold 'to ease back' for rest of 2020 on weak demand, quicker economic recovery - Capital Economics

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(Kitco News) One firm is maintaining its somewhat bearish outlook on gold despite the yellow metal’s persistent attempts at breaching the $1,800-an-ounce level this week.

Capital Economics said in its latest update that it projects gold will ease back for the rest of 2020.

The main reason behind lower price expectations is the weak physical demand out of Asia, according to Capital Economics chief commodities economist Caroline Bain.

“We still expect that the price of gold will ease back in the remainder of 2020. Although ultra-low real yields and a somewhat weaker U.S. dollar will keep the gold price elevated, safe-haven demand will be more subdued as economic activity picks up,” Bain wrote on Thursday.

On top of that, one of the firm’s central revisions was the expectation of a quicker economic rebound.

“In a nutshell, we now expect a somewhat sharper rebound in economic activity in the months ahead, which should bolster riskier assets but weigh on the U.S. dollar,” Bain pointed out.

Capital Economics sees gold prices declining to $1,600 an ounce by year-end and falling slightly lower by the second quarter of next year.

The main upside risk to Capital Economics’ gold price forecast is the second coronavirus wave.

“Clearly, times are still very uncertain, and we will inevitably have to revisit our forecasts as events unfold. A key downside risk is a ‘second wave’ of virus infections, but there is also the possibility that we are underestimating the commodity intensiveness of the bounce back in economic activity,” Bain said.

In the meantime, Capital Economics is more optimistic when it comes to industrial metals, projecting a bigger-than-expected recovery in demand.  

“We have raised most of our year-end industrial metals price forecasts. The strength of recent economic data out of China and the roll-out of economic stimulus means that we now think China’s GDP growth will return to pre-virus levels this year,” Bain said. “What’s more, growth will be driven by metals-intensive infrastructure spending in particular. Given that China accounts for about 50% of metals demand, we think there is a strong case to expect the prices of most industrial metals to rise further by end-2020.”

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