Why TD Securities Expects Gold Prices to Head Higher in 2018

 

Several analysts expect 2018 to be a bullish year for gold

gold headed higher in 2018

In spite of the possibility of successive rate hikes by the Fed, several analysts express in a recent TheStreet article that they expect 2018 to be a bullish year for gold. Among the primary reasons listed are the Fed’s potential reluctance to follow through with the planned rate hikes, geopolitical triggers, improved physical demand in key buying nations and investment demand as a hedge against stocks.

In the article, Bart Melek, head of commodity strategy at TD Securities Inc. (TDS), says he believes gold will benefit from a dovish Federal Reserve policy that will see a maximum of three rate hikes by the end of next year with real rates staying low. Aside from making gold a more attractive investment, lower rates also undercut the dollar, giving gold yet another boost. While there is a chance for multiple hikes next year, Melek sees a strong possibility for only a single hike by the end of 2018.

Expecting President Trump’s nominee for the next Fed leader to carry out a similarly dovish policy, Melek also listed the likelihood of a major correction in stocks and higher demand in India and China as further tailwinds for gold.

“I think 2018 is going to be a good year for gold, and it should shine bright in the New Year,” said Phil Flynn, senior analyst with Price Futures Group. More than merely acting as a hedge, Flynn explained in the article that the flimsy-footed run stocks have rendered gold “undervalued”, which could lead to purchases of the metal. Besides a potential price inflation coming from an improvement in overall commodities, Flynn also listed the launch of bitcoin futures as a boom for gold, stating that it will highlight the yellow metal’s role as an alternative currency.

Societe Generale’s metals analyst Robin Bhar thinks that gold could benefit if the planned U.S. tax cuts do not materialize, as this would make the Fed even more dovish. In the article, Bhar says conflict in the Middle East and terrorist threats around the world may continue to provide support, as will the likelihood that central banks remain net buyers of gold.

In terms of forecasts, the article shows that TDS sees gold reaching an average of $1,313 an ounce next year, with an average of $1,325 in the fourth quarter of 2018, compared to their expectation of $1,257 for 2017. Meanwhile, Flynn says gold will average $1,400 an ounce next year, with the potential to reach $1,500. Macquarie, a financial institution, agrees, stating in a recent report that gold will hit $1,400 for the first time in five years driven largely by a weakening dollar and political issues in the U.S.

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