The Dutch investment bank ABN Amro has given a positive long-term gold price forecast. It expects that relaxed monetary policies and low interest rates in many countries will act as support factors.
According to the strategist Georgette Boele, weak economic growth in the euro zone and the economic slowdown in the US will create favorable conditions for the price of gold to grow in 2020. Investors can expect to earn a profit on their gold assets.
The bank's analysts further predict that in Q1 2020, the ECB will cut the interest rate by 10 basis points, while also expanding its asset purchase program as part of the process of easing the monetary policy. At the same time, the US Federal Reserve may reduce its interest rate by 25 basis points. All of these factors will provide powerful support to the gold market.
Moreover, according to Boele, there will be more state bonds with negative yields, which will also positively impact the price of gold. Even though gold doesn't generate any interest income, it can't have a negative yield, either.
ABN Amro analysts also predicted that the US dollar exchange rate will gradually decrease in 2020 – mostly due to the deteriorating fundamentals and the weak short-term economic dynamics. It's worth remembering that the USD exchange rate and the price of gold have a negative correlation. When the dollar weakens, the gold price starts growing.
According to the bank's experts, this correlation will be maintained in the coming years.
The bank predicts an average price of $1,500 per ounce in 2020, though it could grow to $1,575 in Q4. The upward trend should continue after that. Furthermore, the outlook report states that investors should be ready for a temporary decline in the gold prices, over the next few weeks. Current long positions in gold futures will prevent growth in the short term: as soon as the price starts moving up, speculators will use it as an opportunity to lock in their profits. Therefore, the precious metal will remain under pressure for now.
According to an outlook published by Mitsubishi, smart money will keep backing gold in 2020, using it as a hedging asset against the many negative factors affecting the global economy.
Jonathan Butler, the Head of Business Development at Mitsubishi, believes that central banks have continued to buy gold throughout the fall in order to diversify their international reserves, but also to reduce their dependence on the dollar. Institutional investors are now increasing their gold positions, thus buying precious metal on the COMEX futures -exchange.
Gold is still in high demand among the larger institutions, in spite of the recent stock market growth. This shows that gold is still valued as a safe haven asset in the context of the ongoing global economic uncertainty.
According to Butler, the USD is currently vulnerable and can become even more so during the next year, offering further support to gold.
“There are many factors that could upset a benign macroeconomic view in 2020, from a faltering Eurozone to geopolitical tensions. A potentially overlooked one is the U.S. dollar, whose strength is a brake on U.S. export growth and is creating distortions globally,” wrote the analyst.
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