Gold: Near term weakness, but outlook positive – NAB

Gold has fallen to a yearly low, as it lost around 4% in June itself (end-of period prices), contrasting sharply with the above $13000/oz. price performance in the early part of the year, points out the research team at NAB.

Key Quotes

“A stronger US dollar and a contractionary monetary policy stance by the US Federal Reserve (Fed) have been key drivers of this weakness.”

“Investor interest in gold has also declined – in line with the fall in prices. Speculators have sharply cut their net long futures positions in the precious metal, while ETFs too have also cut back their gold holdings, particularly North-American based ETFs.”

“The Russian, Turkish and Kazakhstan central banks have been active in augmenting their gold holdings.”

“Recently gold has failed to capitalise on its safe haven status, even during bouts of equity market weakness. Traders appear to be liquidating their gold holdings to cover their losses in equities. They also seem to be seeking safety in US Treasuries, as opposed to gold.”

“In the near term, we expect weakness in gold to persist, before investors flock to gold’s safe haven status in light of the ongoing trade and geo-political tensions – and the attendant negative consequences that might ensue.”

“In particular, we are forecasting a year-end gold price of US$ 1314/oz., rising further into  2019 and 2020.”

“Risks to our forecasts are evenly balanced. The outlook for trade, geopolitics  and the US dollar are likely to be crucial factors underpinning  the gold price.”