Gold to reclaim $1,300 an ounce by the end of 2018: Commerzbank

Release Date:  Friday, August 31, 2018

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Gold and Silver Prices

Despite closing higher on Friday, gold closed lower for the week and suffered its fifth consecutive monthly decline following strengthening of the U.S. dollar and markets near record highs.

"...The latest developments on the trade-war front have further aided the dollar, with President Donald Trump expected to move ahead with tariffs on an additional $200 billion in Chinese imports as soon as next week, according to people familiar with the matter.

"'The problem for gold bulls is that while inflation remains contained around the world and there's no driver there for people to buy gold, that strengthening U.S. dollar will be a key factor," Michael McCarthy, chief market strategist at CMC Markets in Sydney, said by phone...

"Fed Chairman Jerome Powell said this month that gradual rate increases are likely, and that with inflation still low he wasn't worried about the economy overheating. The U.S. central bank looks set to deliver four more hikes before pausing, according to UBS Group AG's wealth management unit.

"'In the short term, we'll have further strength in the dollar,' said UBS's Wayne Gordon, Singapore-based executive director for commodities and foreign exchange. Beyond that, gold may get a reprieve 'when people start to look more further forward to the Fed effectively reaching what it sees as neutral, or slightly above neutral,' he said." ("Gold Posts Fifth Straight Monthly Drop as Dollar, Stocks Rally," Ranjeetha Pakiam and Susanne Barton, Bloomberg, 08/30/18 Updated 08/31/18.)

Gold ended the week up $4.50, closing at $1,200.80. Silver ended the week down $0.26, closing at $14.51.

Gold to reclaim $1,300 an ounce by the end of 2018: Commerzbank - Scrap Register

Commerzbank, one of Germany's largest banks, believes that events such as a correction in the equities market or weakening of the U.S. dollar will be the trigger for gold and forecast prices to $1,500 by 2019.

"Gold is poised for a big short-covering rally, with the metal only needing a fresh catalyst, said analysts with Commerzbank in an outlook report.

"The German bank said it looks for the precious metal to reclaim $1,300 an ounce by the end of the year.

"Some investors may be rethinking gold's historical status as a safe haven, but "we wouldn't go that far," the analysts said. The metal has fallen despite a number of geopolitical concerns, such as a currency crisis in Turkey and the U.S.-China trade war.

"However, analysts pointed out that when the financial crisis of 2008 first hit, gold initially lost more than $200, falling to $700 as the U.S. dollar rose. However, then gold took off, rising to $1,200 by December 2009 and $1,400 by the end of 2010.

"'The [2018] drop in price is largely the result of a stronger dollar, a buoyant U.S. equity market, weak EM [emerging-market] currencies and speculative selling,' Commerzbank said. 'Covering of record-high short positions would cause the gold price to surge. All it needs is a trigger, for example, a correction of equity markets or an end to USD [U.S. dollar] strength.'

"The precious metal tends to move inversely to the dollar, which has risen to its highest level in more than a year during recent months, thereby pressuring gold.

"The dollar has reaped the benefit of both its substantial yield advantage versus the euro and from its role as a safe haven," Commerzbank said... A buoyant U.S. stock market has also hurt gold, the bank said. Analysts said this contributed toward outflows of 70 tonnes of gold from global exchange-traded funds during the seven weeks to mid-August.

"... turnaround in the dollar. The bank's currency strategists feel that the greenback's appreciation is nearing an end. In 2019, the dollar could start falling back as the Federal Reserve nears the end of a rate-hiking cycle and the European Central Bank gradually retreats from its ultra-loose monetary policy, they said.

"'In our view, gold has fallen too far,' Commerzbank said. 'The current price hardly reflects the numerous political and economic uncertainties prevailing. The record level of speculative net short positions suggests a substantial price rally before the end of the year. Given the lower starting point, we are lowering our forecast for year-end to $1,300 per troy ounce. We still expect the price to rise in 2019 to $1,500.'" ("Gold to reclaim $1,300 an ounce by the end of 2018: Commerzbank," Scrap Register, 08/24/18.)

Trade tensions could spark a 'global economic crisis,' says former trade minister - Olsen

U.S. and China trade war uncertainty is making businesses make certain choices as well as has them worried about a global economic crisis. 

"The escalating trade war between the U.S. and China could lead to a 'global economic crisis,' according to George Yeo, a former Singapore foreign and trade minister.

"Yeo, currently chairman of Hong Kong-based Kerry Logistics Network, said his company has actually benefited in the short term from the tariff conflict between the world's two largest economies.

"Businesses are speeding up shipments and diverting trade and investment to avoid the impact of tariffs, providing a boon for his company's earnings.

"'But this is temporary,' he told CNBC on Friday.

"'It's not good for us in the near term if it leads to a global economic crisis, which may well happen,' Yeo said.

"'I mean we've just had Trump threatening to leave the WTO if it doesn't change in the U.S. favor,' he added. 'So all this is causing a lot of anxiety all around.'

"U.S. President Donald Trump, in an interview published on Thursday by Bloomberg, threatened to withdraw the U.S. from the World Trade Organization, his latest verbal assault on the global trading system.

"'If they don't shape up, I would withdraw from the WTO,' Trump said in the interview, criticizing the Geneva-based body's treatment of the U.S.

"Bloomberg also reported that Trump said to his aides that he supports going ahead with the imposition of proposed tariffs on an additional $200 billion in Chinese goods. The White House declined to comment on the report.

"Yeo...stressed that people in business are increasingly on edge about the global economy, citing Argentina's skyrocketing interest rates as an example of the nervousness.

"'These things can spread very quickly,' he said.

"He also said that uncertainty regarding the U.S.-China trade war is forcing businesses to make choices, such as where to put a new factory. 'Do you put it in China or do you put it in Southeast Asia,' he said, adding that such considerations apply to both Chinese and non-Chinese multinationals.

"Yeo said he believes China is willing to be accommodating to the U.S. to resolve the trade dispute, but that a deal will ultimately have to be hashed out by Trump and Chinese President Xi Jinping.

"'Trump has repeatedly said, "I'm the only one who matters,'"' Yeo said. 'And I think he's shown by action that that's absolutely true.'

"'Therefore, China has got to deal with him, in the end, directly,'" he added." ("Trade tensions could spark a 'global economic crisis,' says former trade minister," Kelly Olsen, CNBC, 08/31/18.)

Bulls could finally take a shine to gold in September - Hulbert

September and autumn may be the best season for gold. 

"If you listen closely, you'll hear gold investors whispering that 'it's an ill wind that blows no good.' That's because, while September may be the worst month of the calendar for stocks, it's the best month for gold.

"Since it began trading freely in the U.S. in the early 1970s, gold bullion GCZ8, +0.03% has produced an average gain of 2.1% in September...

"To the extent the future will be like the past..September may finally bring some good news to long-beleaguered gold bugs.. I wrote about gold's monthly seasonal patterns last May, pointing out that gold's seasonal tendencies would be negative through the end of August. Since that column was written, gold has fallen by about 10%.

"To be sure, as I wrote recently when discussing the stock market's negative September seasonalities, statistics alone are not a sufficient reason to bet on a pattern's persisting. Another prerequisite is that there exist a plausible theory for why the statistical pattern should exist in the first place.

"Unlike the situation for stocks' September seaonalities, there does appear to be a plausible explanation for gold's September seasonality. Three, in fact.

"I say this on the basis of a study by Dirk Baur, a professor of accounting and finance at the University of Western Australia business school. He discussed three possible explanations for what he termed gold's autumn effect: "Hedging demand by investors in anticipation of the 'Halloween effect' in the stock market; wedding season gold jewelry demand in India, and negative investor sentiment due to shorter daylight time."

"A couple of crucial qualifications are in order. First, Baur also found that gold's returns are more volatile in the autumn than in other seasons of the year. So on a risk-adjusted basis it may simply be that gold's higher autumn returns are compensation for the additional volatility.

"Second, these results are based on averages, and not every September is positive for gold. Last year, gold bullion lost 2.2%. So even if you believe the future will be like the past, there's no guarantee that gold will do well this coming month.

"Still, even with these qualifications, many gold investors are no doubt are relieved that the seasonal winds are finally blowing in a more positive direction." ("Bulls could finally take a shine to gold in September," Mark Hulbert, Market Watch, 08/31/18.)