The yellow metal’s bear market is coming to an end, with prices projected to climb above the $1,400 level in 2018, according to ABC Bullion.
“Gold will continue its recovery from the bear market. We see the metal appreciating towards $1,375-$1,425 in 2018,” chief economist at ABC Bullion Jordan Eliseo told Kitco News in a recent interview.
Some of the key elements to watch next year are U.S. equities, the U.S. dollar and the Fed, Eliseo said.
Stocks have had an incredible run in 2017, posting all-time highs. “This is one of the first years on record when U.S. equities
have essentially been up every single month of the year, while volatility has been at record lows. It is unprecedented,” Eliseo said.
If stocks continue to post gains and volatility remains low, it will be a major headwind for gold in 2018, he said; adding that if volatility increases and stocks surprise the markets with declines, then gold could greatly benefit.
Eliseo added that he sees the U.S. dollar declining in 2018, which would be a major boost to gold.
On top of that, he said a less aggressive Fed could help support gold prices next year.
“I am not convinced that the Fed will be as hawkish as markets are expecting. There are still questions about the low level of core inflation and continued concerns about growth, even though it has been relatively stronger lately,” he said.
In the meantime, the physical demand for gold is likely to remain stable in 2018, Eliseo noted. More specifically, Western demand will improve from its lowest levels in nearly a decade.
“You are going to see buying through the ETF space. Numbers out of Europe this year have been strong both for the ETFs and the physical buying. You will see some continued support there,” Eliseo said.
Central banks will also resume buying, with Eliseo projecting to see a few hundred tons of gold to be acquired again in 2018. Gold demand out of India and China is looking stable as well, he added.
“I’m constructive on physical demand, but I don’t expect it to necessarily skyrocket higher next year,” Eliseo explained.
When discussing this year’s cryptocurrency craze, Eliseo said that he is convinced that some investment flows were redirected from gold to bitcoin.
But, the chief economist noted that the market might see a reversal of that trend next year.
“The bitcoin price rise has been phenomenal and it is unquestionable that it is the story of post-global financial crisis era so far. But you are starting to see problems with exchanges: coins being stolen and platforms shutting down,” he said. “2017 is probably going to remain the best year for bitcoin that we will ever see.”
Also, bitcoin is starting to show clear signs of a classic bubble, Eliseo said.
“Parabolic price increase is a warning sign, the speed at which the prices are rising, the ever more optimistic price projections, and complete fear of missing out (FOMO is truly alive in this space),” he stated. “It is essentially operating as a purely speculative asset. Most speculative assets end up bursting, but it could go a lot higher before it goes lower.”
Source : Kitco News