Gold’s plunge to the lowest level in more than a year may have a silver lining. Numerous European banks are signaling this downward drift is close to ending, and gold prices will probably climb back to $1,300.
Gold bullion may average $1,260 an ounce in the third quarter and rise further in the following three months as interest rate increases are priced in and physical demand emerges, Marcus Garvey, a London-based commodities strategist, said in an interview in India. “We are going to see almost certainly two U.S. interest rate hikes come this year, but they are already, if not fully priced, fairly nearly. So there isn’t a huge scope for a surprise there.”
Gold’s appeal has been fading this year with prices sliding near to the key $1,200 level, partly because of an upbeat outlook on the U.S. economy that’s strengthened the dollar. The metal saw some relief late last week as U.S. hiring cooled in July and China moved to support its currency, and traded at $1,212.84 on Monday. “But looking at the next six months, we are actually around the bottom for this cycle already, so it is more suited in the long term for investors as a decent level for purchasing for their portfolios,” he said.
Although the headline level for the U.S. business cycle looks very healthy, there are some concerns over credit stress, making it questionable whether the U.S. consumer can withstand materially higher interest rates, he said.
The view that bullion’s pain may be nearing an end is shared by Nic Johnson, a Pacific Investment Management Co. money manager, who said late last month that falling gold prices in the absence of rising real yields suggest the metal has cheapened versus other U.S.-denominated haven assets. That along with comments by President Donald Trump “lamenting the strong dollar” could reignite interest in the metal, he said in a blog.
Gold in dollars has the potential to rise as global output may have peaked, Northern Star Resources Ltd. Chief Executive Officer Stuart Tonkin told Bloomberg Television. “Even that slight scarcity, or the view of a declining profile” of production, reserves and resources among the biggest companies will keep a base under gold, he said.
Still, the big money is wagering gold’s recent troubles aren’t over. The latest government data show hedge funds and other large speculators raised net-short bets on the precious metal in the week to July 31 to the most since at least 2006. Traders are concerned a stronger dollar, economic growth and the Federal Reserve’s plan to raise interest rates will further dim prospects.