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The price of gold will continue this year profit of a weaker dollar and more restraint among central banks. That's what analyst Georgette Boele of ABN Amro writes in her latest update on precious metals. She expects the price of gold to rise to $1,400 per troy ounce this year.
She is also positive about silver and platinum, while she has become less enthusiastic about palladium. According to Boele, the price of that precious metal has risen too quickly, which makes a sharp correction possible.
The ABN Amro analyst expects the gold price to reach a level of $1,400 per troy ounce by the end of this year. For the end of next year, she foresees a further increase to $1,500 per troy ounce. According to Boele, the expected price increase can be attributed to four different factors. First, it foresees a weaker dollar, which is beneficial for the gold price. The precious metal typically has a negative correlation with the dollar.
A second pillar of support for gold is the restrained policy of central banks. The Federal Reserve decided to hold off on a further interest rate hike, while other central banks are also sticking to an accommodative monetary policy for longer. They fear the negative effects of tightening too quickly and are adjusting their policy accordingly. Due to the accommodative monetary policy, long-term interest rates remain low, which in turn is beneficial for the Gold price.
The third factor that is in favor of gold is the latest developments regarding the trade conflict between China and the United States. A new trade agreement may be reached this month or next month, which could remove the uncertainty about import duties. According to Boele, a new agreement is beneficial for the Chinese economy and the Chinese yuan. This could have a positive impact on the demand for gold in China, the largest market for the precious metal in the world.
According to Boele, the technical picture for gold also looks favourable. Despite the recent correction, the price is still above the 200-day average of around $1,250 per troy ounce. It expects this level to hold and that any decline towards this level is an opportunity to take a position at this time.
Silver usually follows the price of gold, as both precious metals are seen as a kind of safe haven. However, they are certainly not the same, as silver has an important industrial component. More than half of the annual demand for silver is accounted for by industrial applications, while for gold it is not much more than about ten percent. As a result, the Silver price a more cyclical course of the price.
At the moment, according to Boele, the fundamentals are not working in silver's favor. A slowdown in the growth of the global economy means less industrial demand for the precious metal, so the upside potential is somewhat smaller. The ABN analyst does expect a further rise in the silver price later this year. Next year, she sees the price rising further to $20 per troy ounce.
The price of platinum has been in a negative trend in recent years. The precious metal, which is mainly used in catalytic converters of diesel cars, is under pressure due to declining demand for vehicles with a diesel engine. According to analyst Boele, this trend has already been factored into the price, which means that the downside potential is limited. For the first half of this year, Boele does not yet foresee a recovery in the platinum price, but that could change in the second half of the year.
Boele notes that the price of precious metals is still above the 200-day moving average, which is generally noted as a positive signal. Due to the low price, the demand for platinum may pick up again, for example from the Chinese market for jewelry. Also, more investors will turn their attention to platinum now that the price is relatively favorable. Boele expects the platinum price to rise in the next two years, but there will be no exuberant rally. She expects the price of platinum to reach $1,100 per troy ounce next year.
The price of palladium has risen quite a bit in recent months, much more than most analysts expected. An acute shortage is driving up the price of the precious metal and causing traders to now pay more for immediate delivery than for a contract with a maturity of a few months. This exceptional situation is also referred to as backwardation said.
Boele notes that palladium Lately, there seems to be little concern for historical correlations. The precious metal sometimes behaves as a safe haven itself, while it is normally a cyclical commodity. The ABN analyst therefore believes that palladium is currently the most overvalued precious metal. She notes that the price of the precious metal has risen much faster than the shortage in the market would justify. Also, the market still seems to be unconcerned about a deteriorating outlook for the global automotive industry and a possible substitution to the cheaper platinum for use in catalytic converters.
Due to the high price, it has become risky to invest in palladium, according to Boele. If the precious metal fails to maintain the upward trend of the last few months, a sharp correction could follow. Based on the fundamentals, she does not believe that the price will continue to rise indefinitely and has therefore become cautious.
ABN Amro expects gold price to rise (Source: ABN AMRO)
