Refinitiv GFMS: gold could test $1,700/oz in 2020

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The consultancy issued the outlook while releasing its annual Gold Survey report early Thursday in London. In 2019, gold posted its highest annual average in six years.

And the rally likely is not over, said Cameron Alexander, manager of precious-metals research with Refinitiv. The macroeconomic backdrop should remain supportive for gold, with political and economic uncertainties likely to lead to stock-market volatility and higher risk aversion, Alexander said.

“Central banks’ monetary policy is likely to remain on the loose side, with a possibility of at least one interest-rate cut from the U.S. Fed later in the year, particularly should the U.S. economy show renewed signs of stagnation,” said Alexander. “While demand from key Asian markets will likely remain weak this year, ongoing central-bank purchases and renewed investor interest will lend support for higher gold prices.

“We therefore expect gold to average $1,558/oz in 2020, with a possibility to test and move beyond $1,700/oz later in the year.”

During 2019, gold averaged $1,392 an ounce, a year-on-year gain of 10% and the highest annual average since 2013, Refinitiv said. The average for the second half of 2019 was $1,477 an ounce, which was up 13% from the first half and 21% higher year-on-year.

“The spike in the price was largely attributed to a pick-up in investor interest, particularly among the professional investor community, which was evidenced by positioning on Comex and a surge in inflows into gold ETPs [exchange-traded products],” Alexander said.

“Renewed interest was driven by an escalation of geopolitical tensions, increased concerns over the global economic and trade prospects as well as the gold’s improved price outlook. Furthermore, gold’s appeal was boosted by a shift among the world’s key central banks towards a more accommodative monetary policy to support slowing growth and weak inflation.”

Net managed-money positions jumped by 15%, or 104 metric tons, in the second half of 2019, Refinitiv said. While backing off from the peak, the 819 tons as of year-end was still an increase of 362% from the end-of-2018 level. Meanwhile, ETP investors added 387 tonnes of gold during 2019, with global holdings reaching a new historical high of over 2,700 tonnes by year-end, Refinitiv said.

However, bar and coin retail investment fell by 17% in the second half of 2019, Refinitiv said. Bar demand in India fell by 53%, hurt by higher import duties and high prices in the local currency. China, meanwhile, posted a 2% rise in bar investment during the second half, driven by a pullback in the domestic equity market and rising trade tensions with the United States. Global coin fabrication fell by an estimated 17% to 135 tonnes in the latter part of 2019, the metals-research firm reported.

Gold consumption by the jewelry sector also declined, with fabrication demand falling by 17% in the second half of the year, the consultancy reported. This demand fell in China by 10% amid a slowing economy and higher gold prices. India’s jewelry demand fell by 36% in the second half of the year.