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Bullion prices are seen sliding to USD1,300/oz by the end of this year, according to a forecast by OCBC Research. While a firmer dollar story into Q3 2018 could potentially keep gold bulls at bay, some unwinding of dollar strength in Q4 2018 will likely give gold the necessary boost to the year-end target.
Gold prices faded lower despite the uptick in risk aversion into June, highlighting gold’s disfavor with investors as a safe haven asset to-date. Since the start of 2018, gold prices declined from its $1,300/oz handle to as low as $1,278.5/oz in mid-June. The yellow metal’s 60-day correlation with the greenback tuned stronger into May to as strong as -0.77, suggesting that much of gold’s movement has been predicated by dollar trend.
Fundamentally, the relatively rosier US-centric economic indicators have supported dollar strength, led by strong job gains, lower unemployment levels, higher household spending and business fixed investment. Elsewhere, the surprisingly dovish central bank rhetoric by the European Central Bank (ECB) and the Bank of Japan (BoJ) also gave the greenback further strength into June.
Paper demand however, remains strong into end-June. Gold ETF holdings continue to climb even as gold prices tumble, suggesting that investors’ need to diversify given ongoing uncertainties can still be seen. Physical demand however, remains lacklustre. Inflation risks remain muted into end of H1 2018, despite the higher oil prices seen to-date.
Meanwhile, US-centric inflation expectations seen from the 5-year and 10-year TIPS suggest that CPI pressures remains tame. This is seen to be trending in line with gold prices to-date, the report added.
