Baku, Azerbaijan, Feb.12
By Leman Zeynalova – Trend:
The strength of the price of gold appears at odds with the steep rise in US short-term interest rates since September 2017, the UK-based Capital Economics Consulting company said in its report.
The gold price in US dollar terms has risen by 13 percent since the start of 2017 and 5 percent since mid-December when the US Federal Reserve Board of Governors (Fed) hiked interest rates for the fifth time in this tightening cycle, according to the report obtained by Trend.
“Admittedly, by most measures, inflation expectations have been trending up since the start of the year, which could have given some support to the price of the yellow metal. Indeed, it is often better to look at real interest rates when assessing gold’s performance. But even based on US 10-year Treasury Inflation Protected Securities yields, gold appears overvalued,” said the analysts.
Instead, Capital Economics experts think that the recent strength in the gold price can be largely attributed to two factors. “First is dollar weakness. Second is safe-haven demand on the back of heightened geopolitical risks.”
Capital Economics has recently become less positive on the outlook for the US dollar and now expects it to remain relatively weak this year.
“As such, we are revising up our end-2018 forecast for the price of gold to $1,270 per ounce, from $1,200 previously. That said, we still expect prices to fall from current levels for three reasons. First, we think that the Fed will hike interest rates four more times in 2018. Second, we forecast demand from key consumers – India and China – to remain relatively subdued by historical standards,” said the report.
Third, the consulting company expects safe-haven demand for gold to fall barring any unforeseen escalation of geopolitical risks.
---
Follow the author on Twitter: @Lyaman_Zeyn