Banks and brokerages have cut their average gold price forecasts for this year and 2019 after the metal slumped to 19-month lows in August, but they still expect prices to stage a modest recovery, a Reuters poll showed on Monday.
Spot gold will average $1,273 an ounce in 2018 and $1,300 in 2019, according to the poll of 39 analysts and traders conducted this month. That compares with predictions in a similar poll three months ago of $1,301 for this year and $1,325 for next year.
Gold has suffered a torrid few months, with prices falling from a high of $1,366.07 in January to as low as $1,159.96 in August as a strengthening US dollar made gold pricier for buyers with other currencies and rising stock markets and US interest rates offered better returns.
But it has clawed back to around $1,235 an ounce as sharp falls on global stock markets in recent weeks revived interest in bullion as a safe place to park assets.
“Gold prices are still below where their fundamentals justify, especially if the current shift in risk appetite is sustained,” said Christopher Louney at Royal Bank of Canada (RBC).
Economic and political risks are looming larger, which should benefit gold, said ETF Securities analyst Nitesh Shah.
“There is no shortage of geopolitical concerns ... Italy’s indebtedness and lack of a viable budget, uncertainty around Brexit negotiations, uncertainty around US policy following US Midterm elections are some of the risks,” he said.
Appetite for gold from exchange-traded funds backed by the metal is recovering after their holdings dropped almost 10 per cent, or 5.4 million ounces, between mid-May and early October.
The beginnings of a repositioning by speculative investors which had ramped up bets on lower prices on the Comex exchange to the highest on record is also a positive.
However, bullishness must be offset by the strength of the US economy and the dollar, which rose even as equities plummeted, and several more US interest rate rises still to come, said Harry Tchilinguirian at BNP Paribas, predicting gold prices would fall next year.
Higher interest rates hurt gold because they push up bond yields, denting the appeal of non-yielding bullion, and tend to boost the greenback.
Poll respondents also downgraded their silver outlook, predicting an average price of $15.80 an ounce this year and $16.40 in 2019, down from the previous poll’s forecasts of $16.70 for 2018 and $17.52 for 2019. Silver, used in electronics as well as for investment, has fallen faster than gold this year and is now trading around $14.60 an ounce.
The gold/silver ratio, or the number of silver ounces needed to buy an ounce of gold, rose to a 23-year high of 85 in September.
But analysts expect silver to regain some ground, despite the potential for trade disputes and slower economic growth to depress demand.
“Silver is likely to outperform gold due to the lack of new mines coming on stream, strong retail buying and the fact that it typically outperforms when gold prices are rising,” said Samuel Burman at Capital Economics.
“We expect the ratio to drop to 76.5 by end-2019,” he said.