RBC is Cautiously Optimistic on Gold for 2017-2018
In this note, we analyze seasonality in gold prices, evaluate the close of 2016 and what it means for our 2017 forecasts, and roll out our 2018 forecasts. After going through a post-election re-profiling exercise, our 2017 forecast is now $1,245/oz ($1,241/oz previously) and we launch our 2018 balances and price forecasts with an annual average of $1,303/oz.
- This Month in Focus: As we begin 2017, “’tis the season” for gold indeed, it seems. Gold’s nosedive after the election has given us a clean base from which to start the year. This leaves room for seasonal drivers to breathe some life back into the yellow metal as we march through the first two months of the year.
- In our seasonality analysis, we observe both the strongest and most consistent positive price performance in January and February (by a number of measures). While this seasonal strength appears mostly consistent, we have seen some shifts, particularly when looking at Q4 numbers, which we attribute to trends in China and India.
- From this cleaner base, we have re-profiled our quarterly forecasts for 2017 with a mostly upward trajectory. Yet, even with this change, our full-year annual average forecast has changed only marginally, now at $1,245/oz in 2017 (see page 3).
- We also launch our 2018 prices forecasts with an annual average of $1,303/oz. We largely view 2018 trends as similar to the y/y trends to come in 2017 (at least in terms of the supply and demand balance). Overall, in our view, a cautious march higher will occur, but gold prices will likely be at least partially held back by some macro headwinds. These headwinds are the primary source of our cautious optimism, at least outside of an increase in uncertainty or other risks materializing (e.g., a trade war).
- Monthly Market Analysis: Gold tumbled in Q4 2016, even more than our bearish forecasts anticipated, averaging just $1,217/oz in the final quarter of the year after Trump’s victory. After taking this into account, 2016’s annual average price ended the year just 1.2% shy of our forecast, at $1,249/oz. Besides this move in prices, there were a number of other data points of note as the year drew to a close, but most importantly, we think gold now has a clean base from which to build in 2017 and even 2018.
Full report HERE
H/T to George Gero and RBC
The 1970's Inflation Redux
This slow orderly rally RBC describes is consistent with a 1970's type inflationary environment which we have described as being likely before here.
Summary ofthat article below:
The Playbook for the 1970's
Bonds down >Stocks up > Non-reusable Commodities up > Dollar down >Stocks down > Gold up
The blue area represents how gold behaves in negative real rate environments. Note how it has done compared to the 1970's. Gold has actually gotten ahead of itself. The price reacted much stronger vs. real rates recently than it did in the '70s. That is because we had inflation in the 1970's concurrent with the negative real rates. And that is because the Fed chased inflation then and will have to do so again now. Imagine the behavior of Gold as negative real rates continue (they will), and we actually get inflation ( we are). The yellow rock never should be used as a predictor of inflation. It is best used as a reactor to inflation. Hedge funds did this to Gold. Our conclusion is that Gold will rise even more so when the actual inflationary mess starts.