Gold seen limping into year-end before 2016 recovery

[LONDON] Gold is expected to struggle for the rest of this year after sliding to five-year lows on expectations of higher US interest rates, before snapping three years of losses in 2016, a Reuters poll showed on Friday.

The survey of 35 analysts and traders, conducted over the last month but prior to this week's sharp selloff, returned an average gold forecast of US$1,193 an ounce for 2015, 6 per cent below last year's average and under the forecast of US$1,209 from a similar poll at the end of the first quarter.

Gold, which has averaged US$1,199 an ounce so far this year, is expected to bottom out at US$1,170 an ounce this quarter, before edging up to US$1,189 in the last three months of the year.

After a positive start to 2015, gold prices languished around the US$1,200 mark for much of the second quarter before sliding to a 5-1/2-year low of US$1,077 on Friday. It is currently near US$1,082 an ounce.

Expectations for the first rise in US interest rates in nearly a decade are weighing heavily on the metal. Rising rates lift the opportunity cost of holding non-yielding gold, while boosting the dollar, in which it is priced.

"The strength of the US dollar and expectations of an imminent Fed hike remain the key drivers for gold," Standard Chartered analyst Nicholas Snowden said. "Given the strength of these headlines, we now expect gold price appreciation to be slower than we previously forecast."

"Our gold view is still slightly positive, but we remain wary until the market can put the first Fed rate hike behind it."

Gold prices were tipped in the survey to rise in 2016, when many expect the start of the rate tightening cycle to be out of the way. Respondents pegged prices at an average US$1,250 an ounce in 2016, just below 2014's average of US$1,266 an ounce.

The metal has given up half the gains it made during a historic 12-year rally to its 2011 record high of US$1,920.30 an ounce, as fears over financial market stability receded and other assets, such as stocks, offered more favourable returns.

Silver prices, which have tracked gold lower this year, touching a 6-1/2-month low earlier in July, are expected to decline in the third quarter to US$15.95 an ounce, against an average US$16.40 so far this year. They are then seen recovering in the last three months of the year.

In the full year, silver is seen at US$16.45 an ounce, marginally below the forecast returned at the end of the first quarter, of US$16.70. Next year, it is expected to recover to $17.21 an ounce. Spot silver was close to US$14.55 on Friday.

"Silver's prospects remain closely tied to those of gold," Capital Economics analyst Simona Gambarini said. "After a strong start to the year, therefore, silver has now fallen back."

"However, assuming metals in general recover over the remainder of the year, as we expect, silver could now be set for a rebound."

REUTERS