The next push in gold prices will come from retail investors as risks remain skewed to the upside, according to Standard Chartered Bank.
Having already rallied to the highest in more than six years, bullion will still benefit from safe haven flows, according to Suki Cooper, precious metals analyst at the bank. Prices will average $1 510 an ounce in the fourth quarter of 2019 and $1 570 in the same period next year, she said.
Bullion is up 16% this year as central banks lower borrowing costs and global growth drags amid the prolonged US-China trade war, boosting demand for haven assets. While some risk appetite returned to markets with the two countries agreeing a partial trade accord last week, investors continue to add to exchange-traded funds backed by the metal, with holdings closing in on record levels previously seen in 2012.
“Although we’ve seen ETF holdings and tactical investment hitting elevated levels, like peak highs, we think retail demand is really going to be what drives the next leg higher,” Cooper said in an interview. “Retail investors almost want confirmation of further rate cuts, some weakness in the equity markets before they move into gold. The next leg higher in 2020 is going to be led by the retail side.”
A similar trend occurred in 2011, when the initial push higher was driven by ETF flows and tactical investors, but retail demand didn’t respond for another 12 to 18 months, Cooper said. While progress on trade talks has triggered near-term profit-taking in gold, which could continue as risk appetite returns, the longer-term price risks are skewed to the upside, she added.
Spot gold was steady at $1,491.63 an ounce on Tuesday, following last-month’s rally to $1 557.11, the highest level since 2013. Prices touched a record of $1 921.17 in September 2011.
High prices have hit consumer demand, particularly in emerging markets. China’s jewelry consumption is forecast to drop 4% to about 660 tons this year, according to forecasts from Metals Focus. Gold imports by India plunged in September to the lowest monthly inflow in at least three years.
Cooper is set to speak at a price-forecasting session at the London Bullion Market Association’s Global Precious Metals Conference later Tuesday, while James Steel, chief precious metals analyst at HSBC Securities (USA), will wrap up and review the annual event held in Shenzhen, China this year.
Gold will end the year at $1 555 and close out 2020 at $1 605, said Steel, citing easier monetary policy globally, low yields and geopolitical risks as supportive factors. Both HSBC and StanChart see one more interest rate cut by the Federal Reserve this year.
While Steel sees two major headwinds for gold — forecasts for a firm dollar and the drop in physical demand in emerging markets, which he said had helped bring previous rallies to an end — he’s still bullish. “It looks as if the cocktail of factors driving gold higher just about outweigh those that would undermine it,” he said.
© 2019 Bloomberg L.P.