Last year was a strong year for gold price as concerns about economic strength permeated the markets much of the year. It looks like the gold price outlook for 2020 calls for more of the same — despite signs of economic strength. Other factors like central bank buying and global debt are expected to drive prices for the yellow metal this year.
Gold price outlook for 2020
Most analysts who track the precious metals market have offered bullish gold price outlooks for this year. Some of these bullish views have already been surpassed, so if the current trend holds, the metal could perform even better than the bulls are expecting.
In a recent report on his gold price outlook, Credit Suisse analyst Fahad Tariq said he expects the metal to continue to perform well in 2020 despite “near-term optimism on equities and economic conditions.” He expects a “risk-off skew” this year as uncertainty around the U.S.-China trade war continues, Brexit, and worries about a global recession.
Blue Eagle Capital Partners: Long Thesis For This Lending Stock
Blue Eagle Capital Partners was up 17.7% net for the third quarter of 2020, bringing its return to 49.1% for the first nine months of the year. During the third quarter, longs contributed 28.15% to the fund's performance, while shorts subtracted 7.36%. The S&P 500 was up 8.93% for the third quarter. Q4 2020 hedge Read More
In a report dated Jan. 15, he estimated an average price of $1,540 per ounce for the precious metal, with a peak price of $1,560 during the first half of the year before falling to $1,525 per ounce by the end of the year. The report follows an earlier report dated Jan. 6, in which he predicted an average gold price of $1,570 for this year, suggesting he backed off his earlier views.
Less than two weeks later, his gold price outlook from the Jan. 15 report has already been surpassed. So far, the yellow metal’s price has already peaked above $1,570 an ounce. The price declined, but this morning, it was trading back above $1,570 an ounce.
Factors supporting gold
Tariq notes that central banks around the world have been cutting interest rates due to signs that a recession could be just around the corner. Signs of a possible recession are less clear in the U.S., and the Federal Reserve is pausing its rate cuts, at least for now.
In 2019, the main driver of gold prices were low and negative yields and buying by central banks as they diversified their reserves away from the U.S. dollar. The Credit Suisse analyst noted that more then $10 trillion worth of bonds around the globe have negative yields, which supports gold prices because the opportunity cost for holding it declines while it appears to be a more attractive safe-haven asset.
He adds that central banks have been net buyers of gold for 10 straight years. Despite that, central banks in Asia still have low holdings of the yellow metal, which suggests the buying could continue this year. According to Tariq, an increase in gold holdings to 20% of treasury reserves implies about 22,000 tons in additional demand, which is five times the demand recorded in 2018.
Other factors that support gold prices include previous concerns about a military confrontation between the U.S. and Iran, a weaker U.S. dollar, mixed U.S. economic data, and volatility in the equity market.
Gold price outlook for a new bull cycle
Tariq also said 2019 was the first year of a new gold bull cycle, which he expects to continue this year. Last year’s 18% increase in gold prices came after about seven years of the yellow metal trading sideways.
Canaccord Genuity analyst Carey MacRury said in a report dated Jan. 15 that 2019 was the best year for gold since 2010 thanks to the Fed’s pivot to easy monetary policy. He also focused on the high debt levels with negative yields and also mentioned negative real rates and global central bank easing despite historically low rates.
He believes gold is well-positioned to move higher in 2020, noting that the Fed has been consistently overestimating inflation, having hit its 2% target in only 11 months of the last 10 years. He also said that in past gold bull markets, the price has gained an average of 109%. During the cycle that began in December 2015, the price has only increased by about 50%, he added.