Gold may test $1,475 by 2017-end

Domestic price may not rise in tandem as Rupee is expected to strengthen

Rajesh Bhayani  |  Mumbai 

Jewellery, gold, silver, jewel

Gold is poised for another good year for international investors. It has faced a bumpy ride during past few months but after initial dip following election of Donald Trump as US President, price of the yellow metal has again scaled back to $1,250 per ounce level. According to Nikos Kavalis, Director of Metals Focus, who released their annual report on gold for 2017 today said, "In early March, hawkish comments from some Fed officials weighed on investor interest towards gold. However, following the March meeting, information released by the Fed suggested that most FOMC members stood by the view that two more rate hikes were appropriate for the rest of this year. This is something that the market had largely priced in since late 2016."

This helped gold recoup most of the losses from end-February, surpassing $1,250. Nikos added: "We believe that negative real rates, plus several tail risks, should yield further gains for gold as institutional investor interest in the metal grows. Prices may therefore test $1,475 before the end of this year."

This is among the most bullish outlook but not the only one. Bloomberg quoted Ronald-Peter Stoeferle, managing partner at the Liechtenstein-based company Incrementum AG saying, "Gold is poised to rally to levels last seen four years ago as rising inflation and negative real interest rates combine to boost demand. Prices may climb to $1,400 to $1,500 an ounce this year."

While upgrading gold price forecast, Metals Focus said that first and foremost, real short-term US interest rates will remain negative well into 2018.

Meanwhile, real and even nominal rates across several other key currencies, including the euro, are also expected to remain negative for some time, according to the Metal Focus. "We believe that consensus expectations towards the US economy remain overly optimistic. In the face of budgetary limitations, and a tendency for fiscal prudence among Republican legislators, the new administration's fiscal policy will fall short of expectations,' said Nikos.

He sees this as a risk for equities which have arguably been rallying on the back of expectations of rising earnings amid a stronger US economy. Getting some sense of the over expectations, US market has seen some sell off in last few days.

Metals Focus also believes that the wider macroeconomic and geopolitical climate faces at least as many risks as last year. Uncertainty over the US administration's trade and foreign policies, populism in Europe, Brexit negotiations, tensions between Russia and Europe, Middle Eastern conflicts and China's economic woes are all likely to continue simmering in the background, encouraging interest in safe haven assets.

One area that is unlikely to provide much price support this year is the physical market. While the decline in jewellery will be modest, it follows uninterrupted losses since 2014. This will leave the global total at its lowest level this decade. Low jewellery demand also means lower recycling and coupled with mine production growth running out of steam, which, according to Metal Focus, is positive sign for gold.

In India, however higher gold and as a result falling dollar will strengthen rupee which will cap the gain Indian price terms. Anuj Gupta, Head Research Technicals , Angel Commodities said, "we see gold rising due to uncertainity over Trump policies, in near term, Fed rate hike will curb gain to $1,300-1,320 and in extended rally may touch till $1,400 levels. Dollar index may correct towards 98 to 96 levels and as a result Indian Rupee may appreciate to 64 to 62 levels. Hence on MCX gold, the price will not move in tandem with international gold. But we are expecting MCX gold may also touch 30,000-30,500 levels in the next 3 to 5 months."



Nigam Arora, international bullion analyst and author of Arora report gave a rider for prices. “Only if the Fed does not act. If the Fed aggressively raises rates to counter inflation, dollar will get stronger, rupee weaker and gold lower in India. The highest probability scenario is that Trump will get a few things done and the Fed will be moderate in raising rates. In this scenario, gold will be range bound," he said. 

Gold may test $1,475 by 2017-end

Domestic price may not rise in tandem as Rupee is expected to strengthen

Gold is poised for another good year for international investors. It has faced a bumpy ride during past few months but after initial dip following election of Donald Trump as US President, price of the yellow metal has again scaled back to $1250 per ounce level. According to Nikos Kavalis, Director of Metals Focus, who released their annual report on gold for 2017 today said, "in early March, hawkish comments from some Fed officials weighed on investor interest towards gold. However, following the March meeting, information released by the Fed suggested that most FOMC members stood by the view that two more rate hikes were appropriate for the rest of this year. This is something that the market had largely priced in since late 2016." This helped gold recoup most of the losses from end-February, surpassing $1,250. Nikos added "we believe that negative real rates, plus several tail risks, should yield further gains for gold as institutional investor interest in the metal grows. Prices . Gold is poised for another good year for international investors. It has faced a bumpy ride during past few months but after initial dip following election of Donald Trump as US President, price of the yellow metal has again scaled back to $1,250 per ounce level. According to Nikos Kavalis, Director of Metals Focus, who released their annual report on gold for 2017 today said, "In early March, hawkish comments from some Fed officials weighed on investor interest towards gold. However, following the March meeting, information released by the Fed suggested that most FOMC members stood by the view that two more rate hikes were appropriate for the rest of this year. This is something that the market had largely priced in since late 2016."

This helped gold recoup most of the losses from end-February, surpassing $1,250. Nikos added: "We believe that negative real rates, plus several tail risks, should yield further gains for gold as institutional investor interest in the metal grows. Prices may therefore test $1,475 before the end of this year."

This is among the most bullish outlook but not the only one. Bloomberg quoted Ronald-Peter Stoeferle, managing partner at the Liechtenstein-based company Incrementum AG saying, "Gold is poised to rally to levels last seen four years ago as rising inflation and negative real interest rates combine to boost demand. Prices may climb to $1,400 to $1,500 an ounce this year."

While upgrading gold price forecast, Metals Focus said that first and foremost, real short-term US interest rates will remain negative well into 2018.

Meanwhile, real and even nominal rates across several other key currencies, including the euro, are also expected to remain negative for some time, according to the Metal Focus. "We believe that consensus expectations towards the US economy remain overly optimistic. In the face of budgetary limitations, and a tendency for fiscal prudence among Republican legislators, the new administration's fiscal policy will fall short of expectations,' said Nikos.

He sees this as a risk for equities which have arguably been rallying on the back of expectations of rising earnings amid a stronger US economy. Getting some sense of the over expectations, US market has seen some sell off in last few days.

Metals Focus also believes that the wider macroeconomic and geopolitical climate faces at least as many risks as last year. Uncertainty over the US administration's trade and foreign policies, populism in Europe, Brexit negotiations, tensions between Russia and Europe, Middle Eastern conflicts and China's economic woes are all likely to continue simmering in the background, encouraging interest in safe haven assets.

One area that is unlikely to provide much price support this year is the physical market. While the decline in jewellery will be modest, it follows uninterrupted losses since 2014. This will leave the global total at its lowest level this decade. Low jewellery demand also means lower recycling and coupled with mine production growth running out of steam, which, according to Metal Focus, is positive sign for gold.

In India, however higher gold and as a result falling dollar will strengthen rupee which will cap the gain Indian price terms. Anuj Gupta, Head Research Technicals , Angel Commodities said, "we see gold rising due to uncertainity over Trump policies, in near term, Fed rate hike will curb gain to $1,300-1,320 and in extended rally may touch till $1,400 levels. Dollar index may correct towards 98 to 96 levels and as a result Indian Rupee may appreciate to 64 to 62 levels. Hence on MCX gold, the price will not move in tandem with international gold. But we are expecting MCX gold may also touch 30,000-30,500 levels in the next 3 to 5 months."

Nigam Arora, international bullion analyst and author of Arora report gave a rider for prices. “Only if the Fed does not act. If the Fed aggressively raises rates to counter inflation, dollar will get stronger, rupee weaker and gold lower in India. The highest probability scenario is that Trump will get a few things done and the Fed will be moderate in raising rates. In this scenario, gold will be range bound," he said. 

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