Gold prices should see a steady rise in 2018 as inflation picks up and competition from equity markets slows down, according to George Gero, managing director at RBC Wealth Management.
In an interview with Kitco News, Gero said that he sees gold prices rising to $1,400 by the end of 2018. His comments come as gold has found renewed momentum during the final weeks of the year in what has been a relatively quiet holiday trading period.
Gero said that he is not surprised with gold’s year-end push as it is in line with his unofficial survey conducted during the International Precious Metals Institute (IPMI) conference in late-June. He shared his results with Kitco News, noting that the most bullish outlook was for prices to end the year at $1,950 an ounce, while the most bearish vote was for gold prices to fall to $1,010. The average of the survey was for prices to end 2017 between $1,315 an ounce and $1,325 an ounce.
Looking ahead, Gero said that it is difficult to determine if gold will hold these holiday gains when traders come back in full force in the new year; however, he added that growing concerns over record valuations in equities will keep a steady bid in gold.
“The biggest competition for gold in the new year will be equities,” he said. “But I’m not sure you are going to continue to see record equity markets next year and with gold prices over $1,300 asset allocators will be more interested in diversifying back into the metal.”
Another important factor for gold next year will be bond yields, added Gero, but noting that he sees limited impact in the long-term.
“The Federal Reserve has been following the bond market not leading it,” he said. “If the yield curve continues to flatten the Federal Reserve not be aggressive as they expect in 2018. That will keep bond yields in check.”
While gold is seeing its best bull run since 2010, the yield curve, the spread between 10-year bond yields and two-year bond yields, is ending 2017 near multi-year lows. A low yield curve is positive for gold as a non-yielding asset.
With inflation expected to rise, the question Gero said that investors need to ask themselves is if real interest rates push higher or remain at current low levels.
“I think you are going to see gold push steadily higher in 2018, echoing a natural rise in inflation,” he said.
Source: Kitco News