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Gold may hit US$1,400 next year on 'powerful fuel' of weak dollar

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Gold may have posted two straight months of declines, but is set to shrug off the blues and rise in 2019 as the dollar weakens.

[SINGAPORE] Gold may have posted two straight months of declines, but is set to shrug off the blues and rise in 2019 as the dollar weakens.

The precious metal will start to rebound in the final quarter of this year to average US$1,375 an ounce in the last three months of next year and could touch a high of US$1,400, said Bart Melek, global head of commodity strategy at TD Securities in Toronto. That's a level last seen in 2013.

Weighed down by the surging greenback, bullion has dropped about 5 per cent since April 11 to trade around US$1,300, shrugging off political turmoil in Italy and uncertainties surrounding global trade issues.

"As time moves on, there'll be less and less reasons to get into the US dollar, which will likely reverse some of the flows," said Mr Melek, who's among speakers at a precious metals conference in Singapore this week. "We do ultimately think that as we move into 2019, the US dollar will weaken, which is a very powerful fuel for the gold complex."

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The overall interest rate environment is expected to remain low as the Federal Reserve hikes another two or three times next year before ending its tightening cycle, said Mr Melek by phone on May 31.

This, coupled with fully valued equities, geopolitical risks, and a downward trend in mine supply, will see increasing pressure to buy gold, he added.

Prices are seen averaging US$1,290 in the third quarter and US$1,300 in the final three months of 2018, he said.

His views are echoed by Nicholas Frappell, global general manager at Sydney-based ABC Bullion. In the short term, the stronger dollar is still a headwind and is going to "make life difficult" for gold, but the precious metal will end the year quite firmly, Frappell, who's also addressing the conference, said in an interview on June 1.

"Looking forward, the conditions for the gold market look more positive as the dollar rally becomes more stale and fiscal factors start to erode the dollar's strength," he said, also adding that the tightening cycle may be coming to an end next year.

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