Gold Price Slump To Only Last Until H2-2017 - ICBC Standard Bank

By Neils Christensen

Thursday December 08, 2016 14:33

(Kitco News) - Gold prices are under pressure, but any renewed weakness has already been priced in so prices are likely to move higher later in 2017, this according to one international bank.

In a report released Thursday, analysts at ICBC Standard Bank said that they could see gold trading around $1,160 an ounce in the first half of the year as bond yields push higher in anticipation of increased government spending from the new Donald Trump administration. The bank’s forecast for the first half of the year is close to where prices are currently trading as February gold futures settled Thursday at $1,172.40 an ounce, down 0.43% on the day.

“Anticipation of reflationary fiscal measures may keep gold under pressure in Q1 but the debt ceiling and budget deficit will dominate headlines by H2 – that will recreate a gold-friendly environment,” the report said.

While markets are focusing on President-elect Trump’s potential fiscal policies, analysts at ICBC said that some of his promises could end up being insubstantial.

“There is no prospect that fiscal policy can positively affect infrastructure activity in 2017. Trump is not the Republican Party’s Roosevelt. There will be no New Deal 2.0,” the report said. “Markets appear to be focused on positive scenarios at present but the risks of disappointment are higher than the probabilities of delivery.”

Turning the to the U.S. central bank, ICBC said that the Federal Reserve could be in a tough position next year with the bank forecasting two rate hikes. They noted that the Fed will have to keep interest rates low to protect the housing market, which accounts for 13% of U.S gross domestic product. At the same time, the central bank will also have to limit the rally in the U.S. dollar to protect the manufacturing sector, which accounts for 12% of U.S. GDP.

Markets now await the December 14 Federal Open Market Committee meeting, when the central bank will likely announce a 25 basis-point rate hike.