Gold to end 2017 lower at US$1,200/oz: OCBC forecaster

GOLD prices' recent rally on geopolitical concerns is not likely to be sustained to the end of the year, said Barnabas Gan, OCBC Bank economist.

Although Mr Gan sees gold prices rising above US$1,300/oz if geopolitical tensions intensify further, he sees it ending 2017 at around US$1,200/oz, due to expected US interest rate hikes later this year.

The recent rally in gold prices to its US$1,290/oz handle lifted its year-to-date growth to above 12 per cent, outpacing growth across equity bourses in Asia, Europe and the US, said Mr Gan.

Gold held firm on Thursday, after falling as much as one per cent the previous day, as tensions surrounding North Korea and the upcoming French presidential election offered support to the safe-haven asset amid a firmer dollar, said Reuters.

Spot gold was up 0.1 per cent at US$1,280/oz as at 0107 GMT. The metal fell 0.8 per cent on Wednesday, its worst one-day drop in over a month.

"Much of the rally of late is driven by renewed safe-haven demand, owing to intensified geopolitical concerns," said Mr Gan who was ranked the most accurate forecaster for gold prices globally in the Bloomberg Commodity Rankings in the third quarter of 2016.

"With geopolitical issues starkly affecting gold prices, price trajectory outlook becomes inherently hazy. Geopolitical issues remain a highly important, but uncomfortably unquantifiable factor when determining market sentiment," he said.

"Should conflicts intensify into the near future, it will likely cloud the fundamental backdrop, in this case, a year of rising US interest rates given a rosier economic backdrop, and thus consequently dulling gold as a store of value.

"Given the rally seen over the first four months of this year, we raise our gold forecast to touch US$1,200/oz at end-2017. In the near term, however, some upside risk above the US$1,300/oz could be seen especially if geopolitical tensions intensify further. Still, our view for gold to trend lower into the end-year is underpinned by further FOMC rate hikes later this year."