After a brief dip on Tuesday, gold prices are back on the rise on Wednesday, helped by a more dovish Federal Reserve and a weaker U.S. dollar. The gold market is now consolidating, as market watchers have been expecting for quite some time. Metals analysts are now looking for a breakout for gold prices above $1,300 and boosting gold price forecast with support from a somewhat unexpected place.
Gold price forecast lifted
In a note this week, HSBC Chief Precious Metals Analyst James Steel said the firm has increased its 2019 average gold price forecast to $1,314 per ounce. HSBC expects gold prices to trade between $1,211 and $1,372 per ounce in 2019.
Although gold fell on Tuesday, he said the market didn’t give any “impression at any time of giving way.” Gold was on the defensive on Tuesday amid a rising dollar, rising stocks, and hope of easing trade tensions between the U.S. and China.
By Wednesday some of the story had changed. U.S. equities were still on the rise, and optimism about a trade deal with China continues, although the talks between Washington and Beijing wrapped up without any firm deal in place.
However, gold price forecast were bolstered by the declining dollar as St. Louis Fed President James Bullard warned in an interview with The Wall Street Journal that any more interest rate hikes right now could push the U.S. economy into a recession. His dovish tone weighed on the U.S. Dollar Index, which in turn boosted gold, continuing the delicate balance between the two assets observed in late 2018.
Central bank purchases to support gold in 2019
China’s central bank bought gold last month, according to HSBC’s gold price forecast. Steel reports that the People’s Bank of China added about 320,000 ounces to its gold reserves in December, bringing its total gold reserves to 59.56moz. at the end of December from 59.24moz. at the end of November. He also said the last time China’s central bank officially bought gold was in October 2016 when it purchased 130,000 ounces.
In all, he said 22 central banks around the world purchased gold last year, and for some of them, it was the first time they had bought the yellow metal in decades. He believes central bank purchases of gold will help support prices in 2019, citing portfolio diversification as a key reason for those purchases. He expects central banks to further increase their diversification this year as well.
Recovery for gold prices in 2019
Steel also explained that gold prices are currently in recovery mode after “heavy investor liquidation and losses throughout much of 2018 as safe-haven flows generated demand for U.S. assets and buoyed the USD to gold’s detriment.” However, 2019 has already brought declines in the equity market, increased volatility in the financial markets, and other risks which have pulled investors back to the yellow metal.
The HSBC analyst did warn that Fed tightening could be a negative for gold in the first half of this year, but he expects Fed policy to become supportive of gold into the second half of the year. He’s bullish on gold in the long term, but like other market watchers, he predicted a period of consolidation for gold prices.
Societe Generale analysts are also bullish on gold price forecast in 2019, going so far as to call this year “a turning point” for the precious metal in note this week. They expect gold prices to “break free” as U.S. real yields and the dollar are capped.
Looking at gold prices from a technical standpoint, Kitco said this week that bulls have the advantage in the near term. The news site pointed to the seven-week uptrend in gold prices on the daily bar chart, adding that the next upside price objective is a February futures close above $1,300. On the other hand, bears would need a downside price breakout below $1,260 an ounce. With the yellow metal holding somewhat steady in the $1,290 an ounce range today, the bulls could be in the driver’s seat.
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