Commerzbank Sees $1,350 Gold, $18 Silver By Year-End
(Kitco News) - Commerzbank looks for gold to reclaim $1,350 an ounce and silver $18 by year-end on expectations that the U.S. dollar will start to give backsome of its recent strength.
Gold hit a six-month low this week as the dollar hit an11-month high, benefitting from the divergence in U.S. and European monetarypolicy as well as European politics, the bank said. The Federal Reserve hikedU.S. interest rates again this month, while the European Central Bank said itsbenchmark rates would not rise until after the summer of 2019.
As this underpinned the greenback, gold was unable to garnera safe-haven bid despite weakness in equities generally blamed on global tradetensions. Further, data for U.S. coin sales and exchange-traded funds suggestmuted investment interest for the metal, Commerzbank reported.
“We regard its [gold’s] current price weakness astemporary,” Commerzbank said, adding that “gold should turn positive once thedollar strength starts to fade.”
For starters, Commerzbank said further losses by gold shouldbe limited since the market has already factored in two more U.S. rate hikesthis year. Meanwhile, there are numerous risks such as international tradeconflicts, political crises, the dispute over Iran sanctions and high-pricedstock markets that could be ripe for corrections.
“Because the ECB at its last meeting essentially ruled outany rate hike before the summer of 2019, the sizeable interest advantageenjoyed by the U.S. dollar is likely to remain in place for the foreseeablefuture,” Commerzbank said. “We have therefore lowered our price forecast forthe third quarter to $1,300. We still envisage a gold price of $1,350 per troyounce at the end of 2018.
“The Fed’s signaled rate hikes will bring its interest rateclose to a level that is considered neutral next year. The Fed is hardly likelyto go much above this so long as the U.S. economy does not overheat. In thepast, the market has tended to anticipate the end of the rate hike cycleconsiderably earlier. In 2006, the gold price began making noticeable gainsalready six months before the last rate hike. The debate on the approaching endto Fed rate hikes should drive gold up to $1,500 per troy ounce by the end of2019.”
Should gold rise, silver is likely to follow, Commerzbanksaid.
“We expect to see silver at $18 per troy ounce by year’s endand at $20 per troy ounce by the end of 2019,” the bank said.
By Allen SykoraFor Kitco News
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