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The outlook for gold and silver in 2019

Nikos Kavalis, Metals Focus

 

2018 was a tough year for gold and silver prices. Against a backdrop of rising US interest rates, record US equity prices and a strong dollar, investor attitudes towards gold and its sister metal ranged from indifference to outright aversion. This, in turn, resulted in prices of both metals coming under pressure. At their respective troughs, gold and silver were 10% and 18% lower respectively from their end-2017 levels.

 

The volatility seen in US equities over the last few weeks of 2018 did provide some support to the two metals, helping them reach levels not seen for several months.Even so, at the start of 2019, both gold and silver prices remain considerably short of their early 2018 highs.Although we see scope for further gains in the near-term, , we believe these will be limited. Investor confidence towards the US economy and the country’s equity markets has been shaken and the consensus outlook for US rates sees aless hawkish Fed than previously.However, we do not believe conditions are yet ripe for investors to make a material rotation into the gold (and even more so silver) market.

 

The main headwind that we expect gold (and given their strong price correlation alsosilver) will continue to face, at least over the next six to nine months, is the resilience of the US dollar. Expectations that the ECB will remain dovish for longer, in the face of lacklustre conditions in the Eurozone, against the backdrop of US policy rates continuing to rise, is a key reason behind this. Concerns about the US-China trade war should also perpetuate a dollar-positive environment, at least in the near-term, not leastas they will limit investor allocations towards emerging markets. Ultimately, while continued market volatility should fuel some inflows into gold, treasuries are likely to be the main beneficiary.

 

Looking further ahead though, we believe that the start of a more decisive bull market for gold should be in sight. As we approach the end of the tightening cycle for US monetary policy and given European rates will sooner or later begin to increase, a secular downtrend for the US dollar is likely to start. Value-seeking investor flows into emerging markets, assuming trade tensions eventually dissipate, should also contribute to this. As the market consensus becomes bearish towards the US dollar, we believe that the case for investing in precious metals will be far easier to make. Already by late 2019, we expect that we will start to see stronger gains for both gold and silver prices, a trend that will continue into 2020.

 

Our price projections for 2019 see gold prices move in a $1,225 to $1,365 range over the first nine months of the year, with a move towards $1,400 occurring in the final quarter. Silver is likely to follow suit and actually outperform gold, given its tendency to be more volatile (a reflection of its far smaller market size), and we would not rule out a test of the $19-mark towards the end of 2019.

 

Disclaimer: Views are personal and not the views of the publisher.