Gold will extend its rally as the dollar weakens, future US interest rate increases are already priced in and equity markets decline amid mounting geopolitical risk, according to Prestige Economics LLC.
“Gold is going higher here,” Jason Schenker, president and founder of the Austin, Texas-based firm, said in a Bloomberg TV interview Monday. “We see a gradually weakening dollar on trend. Although we expect two more rate hikes this year”•September, December”•and four rate hikes next year, what we also think is that a lot of that’s priced in.”
Bullion is up 12 percent this year as investors seek a haven partly because of the unpredictability of President Donald Trump’s political and economic policies. The US bombed Syria and Islamic State positions in a remote area of Afghanistan this month, and tension ratcheted up at the weekend after Trump was said to be willing to consider “kinetic” military action, including a sudden strike on North Korea, after a ballistic missile launch by the country failed.
Spot gold climbed as much as 0.8 percent to $1,295.56 an ounce on Monday, the highest level since Nov. 9, and traded at $1,288.87 by 3:53 p.m. in Singapore, according to Bloomberg generic pricing. The Bloomberg Dollar Spot Index fell 0.3 percent and has sunk about 4.7 percent from a high reached in January.
Prestige Economics, an independent market research firm, was ranked the top gold price forecaster for the second quarter of 2016 along with ABN Amro Bank NV, according to data compiled by Bloomberg. Schenker is also a Bloomberg View columnist.
In a Bloomberg survey last week, traders and analysts were the most positive on gold since December 2015. From a technical viewpoint, breakouts above the Bollinger bands in the past few sessions are a “critically bullish sign,” said Schenker, who sees further downside risk for equities as being supportive to gold. He’s also watching for first-quarter US economic growth on April 28.
“If we get weak 1Q GDP numbers, equities are going to take a big hit, the dollar is going to take a big hit and gold is going to sky-rocket,” he said.
Others are not as bullish. Gold may decline this year as the Federal Reserve boosts interest rates, inflation remains contained and geopolitical risks ease, according to Pictet Wealth Management, which flagged a possible retreat toward $1,100. Goldman Sachs Group Inc. is targeting $1,200, $1,200 and $1,250 in its three, six and 12-month outlook for gold, an April 12 report showed.