Gold: Expect moderately higher prices

James Steel, Chief Precious Metals Analyst at HSBC, expects moderately higher gold prices buoyed by a weaker USD with tighter monetary policy creating bearish headwinds.

Key Quotes

“We anticipate moderately higher gold prices this year and in 2018 based mostly on USD weakness, but expect tighter monetary policies and low inflation globally to create headwinds to rallies, a stop-and-go path. We highlight the following drivers:

A weaker USD

Gold has a longstanding inverse relationship to the USD. Likely declines in the USD in 2H, notably against the EUR, according to HSBC FX research, stand to aid gold. This view reflects likely rising disappointment regarding the ability of US policies to deliver reflation. Additionally, French elections provided the catalyst for a shift away from political negatives and towards structural and cyclical positives in Europe.

Tighter monetary policies and geopolitical and other risks

The tightening actions by the Fed and other major central banks create a negative backdrop for gold prices. Increased financial market volatility and sustained equity weakness would encourage safe haven gold demand. Geopolitical risks and policy uncertainty associated with the US administration may further boost gold purchases.

Investment mixed, physical demand weak

ETF demand has been positive this year but is running below 2016 levels; long positions on the Comex are up. We look for both to build further in 2H. Jewelry purchases are mixed, but coin and bar demand are weak. Mine output may be plateauing and scrap supply looks limited. We leave our average price forecasts unchanged for 2017, 2018, 2019, and the long term.”

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.