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Fitch Solutions has revised the 2020 average gold price forecast upwards to $1,850/oz, compared with $1,680/oz previously, with prices reaching 2011 highs and expected to rise still further this year.
"We expect gold prices to remain supported in the coming months with rising geopolitical tensions and an uneven and slow global economic recovery. From a technical perspective, we believe gold prices remain positioned to the upside [...] as concerns about the global economy over the coming months remain, supporting safe-haven assets, including gold," said Sabrin Chowdhury, Senior Commodities Analyst, Fitch Solutions.
"Nevertheless, we acknowledge that bouts of volatility and pullbacks in gold prices will occur during periods of strong risk appetite given that economic data show that the worst is now behind us and hopes of a Covid-19 vaccine approval heighten," he added.
The latest of such pullback occurred on August 11 as profit-taking after positive US PPI data and a slight rise in treasury yields resulted in a drop of gold prices by 6 percent in a day.
In the short term, Fitch Solutions expect the global recession, low bond yields and rising geopolitical tensions to support gold prices owing to its safe haven status.
"Over the coming months, we expect gold prices to trade above the first Fibonacci retracementlevel at USD1,830/oz and below the projection level at USD2,130/oz. Prices should end the year around $1,900/oz," Chowdhury said.
Long-term outlook
Fitch Solutions expect gold prices to start stabilising in 2021, averaging $1,850/oz, which is the same as for 2020. During 2021-2024, prices will average $1,705/oz on an annual basis as the balance of risks reaches an equilibrium.
"We expect competing economic forces to support our long-term neutral view towards gold prices over the coming years. On the one hand, mid-to-later cycle demand pressures could lead to higher inflation, and the potential for greater volatility will provide a tailwind to long-term gold prices, as investors look to gold as a hedge against inflation and risk," Chowdhury said.
"Additionally, we expect central bank demand for gold to remain strong over the coming years. For instance, Russia, China and Kazakhstan have accounted for about 50 percent of global gold purchases in 2019, as the former two countries actively seek to diversify away from the dollar," he said.
However, political uncertainty in the US is expected to ease after November 2020, which could support risk-on sentiment among investors. Fitch Solutions Pharmaceutical team's core view is for a vaccine to be approved before or during H1 2021. "The release of an effective vaccine would most likely dent investor interest in safe-haven assets including gold," Chowdhury said.
(Writing by Seban Scaria; editing by Daniel Luiz)
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