Gold: Near-term consolidation, but gradual improvement ahead – NAB

Gold rose to a recent high of USD1,347/oz. in early September influenced by geopolitical events (primarily North Korea), as well as expectations of a moderate path of future US interest rate rises on account of low inflation outcomes, explains the research team at NAB.

Key Quotes

“Since then, less-dovish comments from US Fed Chair Janet Yellen that rates need to be raised before inflation reaches 2%, a stronger US dollar, general strength in equities and less bellicose comments on North Korea have taken the sheen off the yellow metal. Gold has been last trading around the USD1,270/oz level, well off recent highs and below the critical USD1,300/oz threshold – although it has received some support due to recent events in Catalonia.”  

“The trend in the net long gold futures positions has largely been in sympathy with movements in the spot gold price, with hedge funds and money managers cutting their positions due to a lower gold price and a higher USD.”

“Holdings in gold ETFs continued to rise during 2017, with 191.9 tonnes (net) flowing into gold ETFs during the January-September 2017 period. North American and European based funds experienced inflows, while Chinese and Indian-based ETFs recorded outflows.” 

“Looking ahead, NAB Economics is forecasting the gold price to end 2017 around USD1,262/oz, rising to USD1,300/oz during the end of 2018. The risks to our forecasts are evenly balanced.” 

“Expected rate rises in the US will exert downward pressure. Further, a successful passage of the Trump’s administration’s tax package would boost equities and negatively impact safe haven assets like gold. Conversely, potentially overvalued asset prices and geopolitical tensions could provide support.”