Gold bulls are likely to have their patience rewarded in what is tipped to be the strongest year since 2013 as real interest rates remain depressed and the US dollar stays under pressure. A Reuters poll of 35 analysts and traders returned forecasts averaging $1,311 an ounce in 2018, up 4 percent from last year's levels, when the average price barely budged.
Although gold posted its biggest annual rise since 2010 last year, climbing 13 percent, its yearly average was up less than 1 percent from 2016 levels and the metal held within its narrowest trading range since 2003. Gold had a good end to last year, climbing by 5 percent in the second half of December as the dollar, in which the metal is priced, ground towards its biggest annual drop in 14 years.
The euro and other major currencies are expected to make further modest gains against the US currency by the end of 2018, according to a Reuters poll taken January 2-4. "As developed market monetary largesse is curtailed in 2018 gold will still find support from two main factors - a favourable real-rate environment and a subdued US dollar," Mitsubishi analyst Jonathan Butler said.
"Though US government bond yields may begin to break out of a 30-year downtrend, yields are likely to remain subdued overall and real rates will be kept low if inflation picks up. The dollar is likely to underperform relative to other major currencies." Gold is highly sensitive to rising interest rates, which lift the opportunity cost of holding non-yielding bullion.
Fears that rising US rates could cut investment interest in gold weighed on prices ahead of the first Federal Reserve rate increase in 2015, but they have since recovered as real rates have stayed low. Buoyant stock markets have taken some of the shine off gold this year, analysts said, meaning that any sign of a retracement in record-high equities could spark further gains.
"Sustainable upside to gold should materialise once growth concerns creep into financial markets and revive Western world investors' demand for gold as a safe haven," said Julius Baer analyst Carsten Menke. In 2019 the metal is tipped to extend gains to an average of $1,350 an ounce. Silver, which lagged gains in gold last year, is tipped to average $17.43 in 2018, its highest yearly average since 2014, before rising to $18.07 next year.
Industrial demand for the metal widely used in electronics could benefit from robust global growth, analysts said. "Silver has been underperforming gold over the past two years, but we believe 2018 might be the year things start to change a bit," said Inditrade Capital analyst Harish Galipelli. "Moderate growth in the global economy as well as higher base metal prices can help."