Gold prices could break above $1,400 an ounce for the first time since 2013 this year as an uncertain outlook for stocks, bonds and currencies tempts investors to use the precious metal as a safe haven, according to a Reuters survey of analysts.
Key drivers: The recent stock market volatility, and U.S. President Donald Trump's congressional tax deal and proposed budget that signal ballooning debt and higher spending, which in turn could make it hard to keep inflation in check.
"I'm sticking with my call for gold at $1,450 by year end. This is about a 9 percent gain from current levels and in my opinion very possible," said Chris Gaffney, president of world markets at EverBank, one of the analysts surveyed.Of the 12 analysts polled by Reuters, eight predicted prices of $1,400 per ounce by year-end, including three who forecast $1,450 an ounce - a level not seen since May 2013. A ninth analyst said he expected gold to reach $1,385 an ounce, a level not seen since March 2014. The remaining three declined to give a number but were generally bullish.
A poll of 35 analysts conducted by Reuters in January showed average expectations for gold at $1,311 an ounce this year.
Gold prices have already climbed nearly 7 percent since mid-December to around $1,326 per ounce. Bullion got a boost from inflation fears in the wake of the tax deal and budget proposal and a correction in the stock market.
Inflation is sometimes regarded as gold-positive, because it can hurt investor returns in both stocks and bonds, forcing investors to look for returns elsewhere.
"Investors are positioning a portion of their portfolios into gold and at least hedging their bets a little bit," said Josh Graves, senior commodities strategist at RJO Futures, who forecast gold could reach $1,385 an ounce this year.
"I also have a fear the equity market could go through some type of corrective phase and gold would generally get some type of safe-haven trade from that," said David Meger, director of metals trading at High Ridge Futures, who declined to give a price forecast.
Aggressive rate hikes by the Federal Reserve to combat inflation could limit gold's gains, however, as could a return to stable gains in the stock market.
"Gold appears to have absorbed market expectations for three Fed rate hikes in 2018.
Additional rate hikes are likely to provide a headwind," said Rob Haworth, senior investment strategist for US Bank Wealth Management, who said he expected gold could tip $1,400 an ounce.
During the recent wild stock market ride, jolted investors initially sought refuge in the dollar. But analysts are divided over the outlook for the dollar, and point out that future weakness in the currency could boost demand for dollar-denominated commodities like gold.
Various factors have weighed down the greenback this year, including concerns that the Fed might pursue a weak dollar strategy and the perceived erosion of its yield advantage as other countries start to scale back easy monetary policy.
Traders' confidence in the dollar has also declined on worries over the United States' twin budget and current account deficits, with the latter projected to balloon to near $1 trillion in 2019 amid a government spending splurge and hefty corporate tax cuts.
Gaffney of EverBank said a weaker dollar would make gold more affordable to investors in China and India, the world's largest and second-largest gold consumers, respectively.