Gold tipped to peak at $1,500/oz as equities pose risk – GFMS

THE gold price could peak at $1,500 per ounce during 2018, said GFMS Gold survey owing to the risk posed by high-flying equities. “Our forecast discounts three Fed rate hikes, although a potential overheating from the effect of the new tax reform could lead to more aggressive tightening, limiting gold’s upside,” said GFMS Gold Survey (GMFS).

“The forecast for the annual average is unchanged from our view of three months ago, although we have extended our upside targets as we are expecting increased price volatility this year,” it added. GFMS forecasts an average of $1,360/oz. The metal is currently trading at $1,359/oz which represents a three-year high.

GFMS said the current geopolitical climate and potential equity market problems would continue to support gold in its role as a risk hedge.

“We argued three months ago that there is growing risk in equities and while strength has persisted we continue to believe that the markets need to brace themselves for a sharp correction once the feeding frenzy abates,” it said. “Gold’s role as a risk hedge will remain supportive as rising tensions in Europe and a somewhat spontaneous approach from President Trump are raising uncertainty levels.”

From a physical trading perspective, GFMS expected an improvement in Chinese investment demand whilst Indian demand was expected to remain at levels similar to 2017. During the fourth quarter, physical demand was below averages over other years except for 2016 where physical demand was inordinately low. Indian jewellery demand increased 8% but – as mentioned – against a low base in 2016. Compared to the fourth quarter in 2015, 2017’s fourth quarter demand from India was 12% lower.

From an investment perspective, US coin and bar purchases were 55% lower year-on-year whist coin fabrication was some 75% lower – whilst sales were the lowest in a decade – which GFMS put down in part to the rise in “… enthusiasm for crypto currencies”.

“On balance the prevailing circumstances point to a period of price consolidation with underwhelming demand in the physical market,” said GFMS.

“While physical buying is enough to keep a floor under the price, upside potential will, as usual, be driven by professional flows. The environment suggests that the future risk in the price lies to the upside.”