The National Australia Bank says it is “mildly optimistic about gold – despite some near-term weakness.”
In a rare report on the metal, two of the bank’s economists say that “while an expectation for higher interest rates generates headwinds, gold’s safe haven status, low correlation with other assets such as equities and the possibility of a re-emergence of financial market volatility will help underpin demand.
“We are forecasting the price of gold to be around USD1,235/oz. by end 2017, rising to USD1,300/oz. by end 2018.
For gold’s price to fall to around USD1,100/oz and below, the NAB says "we would need a period of heightened geopolitical/financial calm. Conversely, a major geopolitical or financial shock could see gold’s price surging above USD1,400/oz. This is not our central forecast, though.”
NAB points out that gold began 2017 strongly, up 8% in the first half – despite a 2% fall in June. “This weakness has continued into early July, with the strong US payrolls data exerting further weakness on gold.
However the bank says gold received some support following Fed Chair Janet Yellen’s semi-annual testimony on Wednesday night, our time which the markets interpreted as somewhat dovish.
That was the third trading session in a row that Comex gold futures have risen. The gold price has fallen for the past month up to last week. It was trading around $US1,222 an ounce yesterday, tso the gains the NAB are looking for aren’t very much.
At the moment the value of the US dollar is the major influence on gold prices as investors adapt to more rises in interest rates from the Fed. The first rate rise in 7 years from the Bank of Canada had little impact this week.
Gold prices have not been impacted either by the rise in tensions around North Korea, or by the stumbling and bumbling by the Trump administration.
“A sharp rise in gold imports from India and China during the first half of this year has provided support for gold, although the World Gold Council predicts some easing in Indian demand due to the launch of the GST in July, 2017,” The NAB said.
"China continues to provide innovative gold offerings, including the launch of Microgold, which allows users to electronically send gold through WeChat.
" for gold from Central Banks has been generally subdued, with the exception of the Central Bank of Russia, which has steadily been raising its purchases of gold.
“Gold supply is expected to modestly ease in 2017, with Reuters expecting a reduced quantity of mined gold production’ The bank added.
Equity markets remain close to record highs, a point raised by Fed officials, including San Francisco Fed President who was ‘somewhat concerned about the complacency in the market’. With equities at such high levels, any concerns about a possible market correction should be supportive of gold.
Possibly the bigger influence for Australian investors will be changes in the value of the Aussie dollar. Its was trading close to 77 US cents overnight Thursday – a rate closer to 70 would be more helpful.
