Economy, central bankers to support gold in 2020
By Allen Sykora for Kitco News.
The combination of a softening global economy and central bankers willing to respond with monetary accommodation should support gold and silver prices in 2020, said Rohit Savant, director of research with CPM Group.
Further, central bankers are likely to keep buying gold as they build their reserves.
“We have a lot of uncertainty in the market, driven primarily by dysfunctional politics in the U.S. and to some extent in Europe as well,” said Savant in an interview with Kitco News.
Meanwhile, global economic growth is expected to slow, he said.
“Central banks are still open to the idea of easing if the need arises,” Savant said. “So a combination of all of these factors should be supportive of gold. We don’t necessarily see gold prices spiking sharply higher. They will probably gradually get back to some of the highs we saw this year and maybe a little bit higher than that to $1,580ish.”
CPM Group forecasts an average gold price of $1,540 an ounce for 2020, up from an expected average of $1,395 for 2019. Savant listed a potential peak of around $1,580, while adding that a news-driven event could result in a spike to $1,600.
Ongoing central-bank demand should remain a major factor supporting gold, Savant said. CPM Group projects central banks will buy 20 million ounces on a net basis this year and anticipates a comparable increase in 2020.
“That has been supportive of gold prices this year as well,” Savant said. “Unlike investors, we think central banks are likely to be more consistent large buyers of the metals. Investors have the potential to move gold prices strongly. But central banks are probably a lot more reliable in terms of their buying patterns. There is clearly a set of central banks that have embarked upon a buying program and they are doing it consistently.”
“We think that should continue into 2020.”
The central banks have at least some sensitivity to prices, meaning hesitation to buy when prices are high.
“But we don’t think that the gold prices of 2020 are going to have a major negative impact on their buying,” Savant said. “We do think they would stay in the market and buy gold…, increasing their holdings and diversifying away from the euro and U.S. dollar.”
Silver is expected to largely track gold, Savant said.
“It generally tends to underperform gold in the initial stages of a long-term rally,” he said. “You might see some of that in the case of next year where it’s not necessarily performing as well as gold is. But still, we do think both of these metals will rise over the course of next year.”
The consultancy looks for silver to average $17.60 an ounce in 2020, compared to $16.20 for 2019. The metal could peak between $18.50 and $19 in 2020, Savant added.
“Silver is tricky to call because of the way it moves,” Savant. “It is so volatile.”
CPM Group looks for palladium to be a strong performer, although with a lower percentage gain than recent years. CPM Group forecast an average price of $1,780 for 2020, which is around 17% higher than the 2019 average. The consultancy looks for platinum to average $915 an ounce in 2020.