Gold seen fighting back as US dollar rebound poised to fade

SINGAPORE: Much maligned gold is set to stage a comeback as the dollar weakens, according to Pictet Wealth Management.

Bullion will climb to US$1,320 an ounce by the end of the year, said currency strategist Luc Luyet, which compares with about US$1,256 on Wednesday. While trade tensions haven’t yet provided much support, an escalation combined with a slide in the dollar could lift prices, Geneva-based Luyet said.

Gold has fallen out of favour as investors prefer havens such as the dollar, Treasuries and yen amid fears that a looming trade war will damage global growth, hurt earnings and drag down stock markets and other risk assets. Adding to bearish sentiment, the 50-day moving price average dropped below the 200-day last Friday, forming what analysts call a death cross and signalling further losses. Prices are now around the lowest level since December.

“We continue to believe that the dollar has peaked in January 2017, and therefore, the recent strength is some sort of a temporary rebound and we expect further declines down the road,” Luyet said in a phone interview.

“Even though it’s not our scenario, if we see higher trade tension, that could at some point be positive for gold,” he said, adding it may lead to lower global growth and increased uncertainty, which are normally positive drivers for bullion.

Other analysts have also been supportive of the metal. Suki Cooper, precious metals analyst at Standard Chartered Plc, sees gold testing five-year highs by the end of the year, implying that prices could rise toward US$1,400, while Bart Melek, global head of commodity strategy at TD Securities in Toronto, has said that he expects the metal to start to rebound in the final quarter.

Bullion’s retreat has also been fuelled by the Federal Reserve’s hawkish tilt on monetary policy as a booming economy tightens the labor market and raises inflation risks. Hedge funds and speculators last week cut their net-long bets to the lowest since early 2016, while assets in SPDR Gold Shares, the biggest exchange-traded fund backed by the metal, are the smallest since August.

The Federal Reserve will probably raise interest rates two more times this year, and twice in 2019, while the European Central Bank will likely start tightening in September next year, said Luyet. That should shift the monetary policy divergence in favor of the euro relative to the dollar and be positive for gold in the greenback, he said. He sees gold at US$1,350 in 12 months time. — Bloomberg