Gold’s on track to climb to a four-year high of $1,400 an ounce by early next year, buoyed by lower long-term U.S. interest rates and lack of progress by President Donald Trump in delivering economic reforms, according to the global head of commodities research at Bank of America Merrill Lynch. Prices will also rise in dollar terms as a shift in economic cycles between the U.S. and Europe strengthens the euro, Francisco Blanch said in a phone interview on Monday. The Federal Reserve is not tightening as fast as people expected, and the European Central Bank is set to start tapering, so “some of that leads to a higher euro eventually, combined with more stagnant long-term rates in the U.S., and that’s a tailwind for gold,” he said. Bullion has jumped 12 percent this year as the dollar weakened, turmoil in the Trump administration cooled optimism over reforms and tensions with North Korea sparked fears of conflict. Money managers boosted net-bullish bets on New York futures to the highest since October, while billionaire Ray Dalio, who leads the world’s largest hedge fund at Bridgewater Associates, recommends investors consider placing as much as 10 percent of their assets in gold. The hikes at the front-end of the yield curve “stand in contrast to what’s been happening in the long-term end,” Blanch said. Meanwhile, “the ECB is embarking on a tightening cycle, without having addressed the structural issues within the euro zone. So from a gold perspective, you’re in for a cycle where we probably saw the lows a few months ago, and now we’re gonna be probably onto a stronger path.” Spot gold briefly breached $1,300 last week after failing twice this year, and traded at $1,286.67 on Tuesday. Blanch adds to voices expecting higher prices. Evgeny Ananiev, head of precious metals at VTB Capital JSC, a unit of Russia’s second-largest lender, said in an interview this month prices could hit $1,400 by year-end on North Korean tensions and buying from India and China.
Other catalysts that could lift gold are a reversal in U.S. stock markets that have hit records this year and continued subdued inflation in America, which may lessen the chances of further increases in interest rates by the Federal Reserve. Investors will also be eyeing an annual meeting of global central bankers in Jackson Hole, Wyoming, on Aug. 24-26 for clues on monetary policy. Fed Chair Janet Yellen and ECB President Mario Draghi are among the speakers. ABN Amro Bank NV sees lower prices in coming weeks. Bullion will probably drop to the lower end of the $1,200 to $1,300 range as strong U.S. economic data support the dollar, the Fed increases interest rates more than financial markets anticipate and tensions over North Korea dissipate, according to a report from currency strategist Georgette Boele this month.
Blanch said downside risks include potential producer sales at $1,300, $1,350 and $1,400, the Trump administration delivering on some of its reforms and the possibility that investors may allocate more to cryptocurrencies, though even then, the impact may be limited because gold is a much larger market.