Banks and brokerages were on Monday bearish on gold price as they slashed their average forecasts for this year and next after heavy losses in the second quarter, but expect the metal to bounce back towards $1,300 an ounce, a news service poll has revealed.
With 35 analysts and traders participating, they forecast an average gold price of $1,301 an ounce in 2018 and $1,325 in 2019.
This was after gold plunged from $1,365.23 in April to around $1,220, under pressure from a strengthening dollar, expectations of higher U.S. interest rates, a large decline in gold held by exchange-traded funds and a sell-off by speculative investors.
The stronger dollar makes gold more expensive for buyers with other currencies, while higher interest rates increase the opportunity cost of holding non-yielding bullion.
“Gold should build a bottom over the coming months,” said Julius Baer, analyst at Carsten Menke.
“Medium to longer-term upside should materialise once growth and inflation concerns creep into financial markets, reviving safe-haven demand,” he said.
Gold is traditionally used as a safe investment during political and economic uncertainty, but the threat of a global trade war and gyrations on world stock markets have so far failed to lift prices.
Low prices are also beginning to spur physical buying in India and China, the biggest gold consumers, helping support gold, said GFMS analyst, Rhona O’Connell.
“We do expect gold to rebound towards $1,300, although whether it has the legs to push convincingly through that level has to be doubtful in the short term at least,” she said.
Analysts also downgraded their silver outlook, predicting an average price of $16.70 an ounce this year and $17.52 in 2019, down from the previous forecast of $17.28 for 2018 and $18 for 2019.
Silver, used in electronics as well as for investment, has dived from $17.32 in mid-June to around $15.30 an ounce, caught up in a broader sell-off of industrial metals prompted by fears that rising trade barriers will damage global economic growth.
But it is likely to rebound faster than gold, the poll showed.
“Although silver has suffered alongside the other metals amid rising trade tensions and scaling back of subsidies, its fundamental outlook remains relatively healthy,” said Standard Chartered’s Suki Cooper.
“We expect more upside potential from silver than from gold as silver should benefit by a steady industrial demand, representing an important floor to market prices,” said Daniela Corsini at Intesa Sanpaolo.