ANZ analysts point out that gold has benefitted from its safe haven status amid deteriorating macroeconomic outlook and see prices settling above USD1,400/oz, with a reasonable chance of breaking USD1,500/oz over the next 12 months.

Key Quotes

“A macro backdrop is emerging that will see gold prices remaining resilient. With the Fed ending its hike cycle and turning dovish with signals of rate cuts, the backdrop is turning supportive in 2H and beyond. A likely rate cut amid slowing economic growth will limit the upside in the US dollar and also lower the opportunity cost for holding non-yielding assets like gold.”

“Further, renewed trade tension has started affecting business sentiment and this will have a negative implication on corporate earnings. Such a backdrop can bring equity market volatility back, and a lower correlation of gold serves as a perfect risk diversifier to limit the portfolio losses.”

“Supply-demand fundamentals are turning supportive as well with slowing mine-supply growth and improving physical take-off. Central bank purchase is becoming a major source of demand; and this is likely to absorb 10-13% of total supply.”

“The key risk to our view is if a US-China trade deal is reached. This would significantly reduce the risks to the global economy and lower rates by central banks. However, this is not our base case, with tension likely to remain for the foreseeable future.”

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