Commodity strategists at TD took a look at gold, finding a multitude of reasons to like it ahead. In summary:
- world is increasingly awash in negatively yielding bonds
- global economic fears continue to rage
- a broad consensus that the Fed and other central banks will add monetary accommodation, which may include new QE programs
- politically-driven appointment of Lagarde as head of the ECB made many in the market believe that non-conventional monetary policy action from the ECB is likely
- speculation that the US Treasury Department may soon starting following a weak dollar policy
- Trump appointment of relatively dovish FOMC officials
But, they do note further:
- gold has not broken through the $1,380-$1,440 trading range
- very likely due to a well performing high-risk corporate bond market and strong equities
- increasing the opportunity cost to hold a zero-yielding perpetuity like gold
Forecasts:
- Stable inflation and still decent US economic numbers are the key reasons why the US central bank is unlikely to convince traders that its time to go aggressively into simulative mode. For this reason we see gold averaging $1,400 of the balance of the year. Conversely, once equity correction risks and vols rise and as US data starts turning lower convincingly, low Fed rate expectations and insurance premiums should lift gold toward $1,500 in the final months of 2020
