'I Don't See Why One Would Want To Invest More In Gold' - World Bank

By Sarah Benali of Kitco News

Wednesday February 22, 2017 08:05

(Kitco News) - Despite gold’s strong performance since the start of the year, the World Bank is sticking to its story when it comes to gold, and it’s not a positive one.

According to John Baffes, an economist for the international organization and also the lead author of the bank’s quarterly Commodity Markets Outlook report, reiterated his call that gold prices are likely to fall 8% this year, averaging at $1,150 an ounce.

This forecast came out in the bank’s last commodities report, which was released in late January. Roughly one month later, the forecast remains grim.

“If we did our forecast today, would we change our gold forecast? The answer is no,” Baffes told Kitco News in a phone interview Tuesday.

“I don’t see why one would want to invest more in gold.”

As Baffes explained, key factors for this bearish outlook include stronger U.S. equity markets that would likely drive down investment demand, the prospects of increased interest rates in the U.S. as well as  lackluster physical demand for bullion.

“There might be some physical demand, some stabilization in Indian demand but not enough to counterbalance the attractiveness of other assets,” he said. For that reason, Baffes added he cannot make a case for gold in 2017.

However, Baffes said there is one key factor that will drive the gold price lower. “If I have to pick one, probably interest rates will be the more important factor,” he said.

Federal Reserve officials have recently been vocal on rate hikes with the latest comments from Philadelphia Fed President Patrick Harker deemed hawkish by the marketplace. Based on CME’s Fed Watch Tool, markets are pricing in a 22% chance of Fed tightening in March and expecting at least three rate hikes this year.

Overall, Baffes said he expects precious metals to fall 7% in 2017, and silver prices to fall by 4%.

Gold prices are trading flat Tuesday with April Comex futures last at $1,238.30 an ounce, down 0.06% on the day. March silver futures last traded at $18.025, down 0.03%.