Gold Demand Growing, Silver Undervalued

Gold Demand Growing, Silver Undervalued


The survey of 36 analysts and traders returned a median forecast for gold to average $1,305 oz in Y 2019, up around 3% from last year’s average and a touch higher than forecast in a similar poll 3 months ago.

It predicted prices would average $1,350 in Y 2020, just below the highs of $1,374.91 in Y 2016 and $1,366.07 last year.

Reuters Graphic

In Y 2018, gold saw its 1st annual decliner in 3 years, with surging stock markets and higher US interest rates offering investors better returns elsewhere, while a strong USD made gold more expensive for non-US buyers.

But the precious Yellow metal has managed a firmer pattern YTD, reaching 7-month highs and hanging around the important technical mark at $1,300.

A slowdown in Fed interest rate hikes, possibly a weaker USD, and ongoing geopolitical instability are building in favor of gold.

Flagging growth in China and elsewhere and a US-China trade dispute have knocked world stock markets from last year’s record highs and raised fears of a broader global slowdown. Thus, reviving interest in gold as a safe store of value.

Economists say the Fed will slow the pace of rate rises, and currency strategists polled by Reuters believe the USD’s rally is largely over.

Adding to the Bullish mood, gold-backed ETFs have added around 4-M oz, or 7.6%, to their holdings of the precious Yellow metal since early October.

Speculators also turned positive, with bets on higher prices on the COMEX exchange overtaking bets on price falls by mid-December.

We see gold in a longer-term recovery. The 1st phase, driven by normalizing sentiment in the futures market, seems to be completed and a short-term consolidation around the $1,300 oz psych mark looks likely in here.

The 2nd phase, characterized by a weakening USD, should start around the middle of this year.

And the 3rd phase of returning safe-haven demand once growth and inflation concerns creep into financial markets early in Y 2020.

Gold is often held as protection against inflation, which erodes the value of other assets.

For silver, poll respondents forecast an average price of $16 oz this year, up from last year’s average of $15.68 but less than the $16.40 predicted 3 months ago. It marked the 4th consecutive poll in which the Y 2019 silver price forecast had been downgraded.

Reuters Graphic

They said prices would average $17.20 next year.

That would push the closely watched gold/silver ratio down from the decade highs reached last year.

Silver is used in electronics as well as for investment, and the worsening global economic outlook has weighed on prices.

The Devil’s metal tends to follow the direction of gold, and its price swings are often more extreme than those of bullion.

We are cautiously Bullish silver prices, given a fundamentally sound demand-and-supply physical market. Silver is undervalued relative to gold and some catch-up is expected.

Stay tuned…

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