Gold may climb to USD 1,600/oz
Gold, which hit an over six-year high of USD 1,561.80 an ounce in September, gave one of the highest returns among commodities this year. And, the coming year may be no different as presidential elections in the US, doubts over a meaningful US-China trade deal, and worries about an economic slowdown make a case for further gains.
The most bullish of estimates, that by Australia and New Zealand Banking Group, sees gold peaking at USD 1,620 an ounce in December 2020. Since the beginning of this year, gold has given returns of 17 per cent and moved in a range of USD1,267-USD1,562 an ounce. Currently, it is being traded at around USD 1,508 an ounce.
While the unpredictable trajectory of US-China trade talks has dragged on, recent developments suggest progress on this front. The two countries have also suspended planned increases in tariffs and lowered tariffs on some products. Markets, however, remain unconvinced.
The fallout of the trade war is evident, with growth in the US economy seen slowing to 2.1 per cent in 2020 from 2.4 per cent this year, according to the International Monetary Fund. Adding to the environment of uncertainty, the US House of Representatives recently impeached Trump on two counts—abuse of power and obstructing Congress. The president, however, is likely to survive a trial in the Republican-led Senate in January.
Also, the US Federal Reserve has ruled out further rate cuts in 2020, which is another bullish factor for gold. The low and negative interest rate environment is expected to continue next year due to the monetary policies followed by major central banks. There is the risk of the overvalued US dollar and the highly-valued stock markets correcting," Carsten Fritsch, analyst at Commerzbank AG, said in a report. Commerzbank AG sees gold rising to USD 1,550 by the end of 2020.
During January-September, net purchases of gold by central banks totalled 547.5 tonned, 12 per cent higher than in the corresponding period last year. Central banks' diversification of their reserves is expected to continue in 2020, providing a fillip to gold prices. "We believe investors will face an increasing set of geopolitical concerns, while many pre-existing ones will likely be pushed back rather than being resolved... there are clear reasons for higher levels of safe-haven assets like gold," Juan Carlos Artigas, director of investment research at the World Gold Council, said in a post.
Despite the overall optimism for gold, there are factors that could turn the tide.
JP Morgan sees gold prices averaging USD 1,494 an ounce in 2020, peaking at USD 1,550 in April-June and easing to a low of USD 1,450 in OctoberDecember. "After a solidly bullish start to 2020, we also see precious metals returns fading later next year."
"The economic slowdown, liquidity crisis, and depreciation in the rupee, along with rising global gold price (and) rise in custom duties are all acting as a catalyst for the elevation of the gold market," said Prithviraj Kothari, national president of the India Bullion And Jewellers Association. He sees domestic gold prices moving in a range of Rs 38,000-42,000 per 10 gm next year.