Gold prices are set to jump to a four-year high of $1 400 an ounce by the end of the year over mounting tensions between North Korea and the US, and surging demand in the world’s biggest consumers, according to the head of precious metals at a Russian investment bank.
Bullion could rise to $1 360 within three months before climbing higher, fueled by global political risks and buying from China and India, said Evgeny Ananiev at VTB Capital JSC, the investment-banking unit of Russia’s second-largest lender VTB Group. “We may see some correction, but I don’t think gold will drop below $1 200 as it’s well supported,” he said in a weekend interview in Goa. The metal traded at $1 281.86 on Monday.
Prices have climbed 12% this year, driven by worries over a potential nuclear conflict between the US and North Korea, and subdued inflation in the US, which is cooling chances of a further increase in interest rates. President Donald Trump has intensified warnings to North Korea, promising a massive response to any strike against the US or its allies. Hedge fund billionaire Ray Dalio recommends investors place 5 to 10% of their assets in gold.
The upbeat sentiment was shared by other participants at the conference. “Fundamentally, we have been very bullish on the market,” said Chirag Sheth, an analyst at Metals Focus, an independent precious-metals research firm based in London. “What North Korea has done is given gold the legs to go above the $1 300 level and sustain above that level,” he said in an interview.
Sheth expects prices to advance to $1 400 in six to nine months as the situation in North Korea sees investors coming back to the market in search of a haven. The US Federal Reserve, which was hawkish on interest rates, has now softened its stance, providing further support to bullion, he said.
As Trump and Kim Jong Un traded barbs, Dalio wrote in a LinkedIn post last week that “the world is watching to see which one will be caught bluffing, or if there will be a hellacious war.” Dalio, who manages Bridgewater Associates, also said he sees rising odds of Congress failing to increase the US debt ceiling, leading to a technical default.
The US consumer-price index rose 1.7% in July from year earlier, a report showed Friday, trailing the 1.8% median estimate of economists surveyed by Bloomberg. Cooling price pressures could make it tougher for the US central bank to raise interest rates again this year.
Indian demand has also recovered after a poor performance in 2016 and jewelry consumption may climb by about 6% this year, said Sheth, who provides supply and demand data to the World Gold Council. Imports may jump about 30% to as high as 800 metric tons in 2017, he said.
Demand for gold bars in China, the world’s biggest bullion market, soared by more than half in the first six months of the year, while overall gold consumption climbed almost 10% to 545.2 tons, according to the China Gold Association.
© 2017 Bloomberg