No one Understands Gold - OCBC Ups Outlook

By Paul Ploumis (ScrapMonster Author)

May 13, 2016 01:08:37 AM

(Kitco News) - How does gold still have stamina? This is the question one economist is asking himself after recently making adjustments to his forecast for the yellow metal.

The Oversea-Chinese Banking Corp. is among a slew of banks that have recently upped their outlook on gold, announcing Thursday that it sees gold ending the year $100 higher than its previous forecast.

“All-in-all, we upgrade our gold price forecast to $1,200/oz at end 2016, from our initial outlook of $1,100/oz, given the diminished probability for the Fed to inject two rate hikes as indicated by the Fed fund futures,” noted Barnabas Gan, the OCBC’s commodity economist and once deemed one of the most accurate precious-metals forecasters.

“Moreover, the many events into 2016 may inject risk-aversion sentiments, led by the Brexit referendum, OPEC’s June meeting and November’s U.S. election, thus giving safe havens like gold a shine,” he added.

Gold futures were nearly unchanged Thursday, last down $1.10 at $1,274.40 an ounce.  

Despite understanding gold’s appeal among risk-averse investors, Gan said he remains bearish “given that our bearish view is largely underpinned by the expectations for the FOMC to hike rates further.”

“[W]e perceive that the Fed will likely hike at least once this year given the information pieces we have at this juncture. Should the U.S. labor market hold up amid healthier global economic cues, we may then see a possible second hike into the end of 2016,” he explained.

Another key factor remains fluctuations in the U.S. dollar as gold remains a “quasi FX-commodity” asset, Gan noted.

“As such, gold in value terms, would take substantial cues from how the dollar may trend, and the latter would be influenced largely by the prospect of the rate hikes that may pan out in 2H16,” he added. 

Over the short term, Gan expects the increasing expectation for the Fed to stay pat on rates to support gold above $1,250 an ounce.

The OCBC is among a slew of big banks that have also upped their forecasts for the yellow metal, including longtime bear Goldman Sachs, plus JP Morgan and BMO Capital Markets calling for the metal to push to $1,400 an ounce.

Courtesy: Kitco News