Analysts at UBS have trimmed their 2017 for gold, despite futures prices having regained most of their losses since the election.
Reuters GMFS produced their first 2017 estimate a few days ago at $US1,259 an ounce.
UBS has cut its forecasts to an average of $US1,300 a troy ounce this year, from the previous estimate of $US1,350
And UBS also trimmed its 2018 estimate to an average $US1,325 a troy ounce, down sharply from $US1,450 previously.
These cuts compare to the futures gold price overnight in New York. Comex gold settled up $US4.80, or 0.4%, at $US1,248.50.
UBS says the story around gold hasn’t changed that much, but says points to three small but significant factors.
The Q1 2017 price move wasn’t convincing with prices rising more slowly than forecast. For that you can partly blame the constant market speculation about the Fed’s move on interest rates.
Gold prices were up nearly 9% in the three months to March but much of the buying wasn’t as a hedge (inflation isn’t rising dramatically and international pressures are not a standout).
UBS says much of the buying has been from investors looking for portfolio diversity, not as a hedge.
Second is the continuing role of the Fed and the market belief of two more rate rises – all this continues to exert downward pressure on gold.
And on top of that we now have rising speculation that the Fed will start running down its $US4.5 billion portfolio by allowing securities to mature, rather than reinvesting the cash into new issues.
If that starts happening, it will be seen as a small but noticeable tightening in monetary policy.
The first the market learns of this happening will be when the Fed publishes an update on its balance sheet which reveals a significant fall in the holdings of bonds and other securities.
The third reason is the changing shape of bond yield curves as economic data in Japan and the eurozone improves and political uncertainty eases, especially if Marie Le Pen loses the french Presidential polls later this month and in early May.
Since Brexit, political uncertainty in Europe has been a positive for gold, but if French voters reject Ms Le Pen, it could have a sharp impact on gold. But then investors will focus on the situation in Italy which, if anything, is more fraught.
Brexit is now underway which removed a major area of uncertainty, although there will be smaller bouts from time to time in the next two years.
