Natixis downgrades price outlook for 2020 as gold starts losing glitter

Signs of a thaw in the US-China trade spat and prospects of an improvement in US economic growth have taken a toll on the metal, which has lost nearly $100 an ounce to trade at $1,456 today

Cracks have started showing up in the bullion market following the sustained decline in gold prices, with Natixis downgrading the outlook for the next year. The metal shed as much as 3.72 per cent in the international market this month, which is the largest single-month fall after November 2016, when gold lost 8.14 per cent, according to Bloomberg data.

Signs of a thaw in the US-China trade spat and prospects of an improvement in US economic growth have taken a toll on gold, which has lost nearly $100 an ounce to trade at $1,456 today.

Bernard Dahdah, Senior Commodities Analyst, Natixis said, “Our price forecast for 2020 has been revised down to an average of 1,370/oz. This reflects a more positive outlook on the US economy and our expectations that the current Fed rate cut cycle has concluded. That said, we expect limited downside risk due to the substantial $12.5 trillion worth of negative-yielding debt, which will put a floor under gold prices.”

Gold has averaged $1,385.14 so far 2019 and is expected to fall further next year. The metal had averaged $1,264 an ounce in 2018. However, the bull run in 2019 was largely visible in the second half, with prices between July and November averaging $1,477. Prices will fall sharply next year if Natixis' forecast comes true.

The firm also said that the sharp fall in demand by two major consumers -- China and India -- and a better-than-expected US GDP in Q3 will reduce interest in gold.

Earlier Citi had also stated that it sees gold remaining subdued in the near term, following an improved global trade scenario.

T Gnanasekar, Director, Commtrendz Research, said, “In the near term there could be some pressure on the back of the news flow from Trade talks and The Fed meeting mid-December, which will set the direction for prices in 2020.” However, he is not that bearish for the medium term. He said, “Peaking stock markets, a possibly dovish Fed and a weaker dollar could lend strong support to gold prices in the second half of 2020.”

Earlier, based on gold price performance till October-end this year, UBS had forecasted the metal to remain bullish, with the price likely to reach $1,600 an ounce. However, In the report Year Ahead 2020, it has warned, “For precious metals, investors should bear in mind that insurance-like qualities do not come for free. If geopolitical tensions ease or the economy recovers more quickly than we expect, performance would likely suffer.”