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Citi Research looks for gold to come under pressure in 2016, with a full-year average price forecast of $1,160 an ounce, and suggests that platinum group metals could outperform the rest of the precious-metals complex.
Republican Donald Trump’s victory in the U.S. presidential election has shifted U.S. dollar and interest-rate expectations higher, analysts said. This in turn points to a bearish gold outlook due to the inverse relationships between the markets.
“Supply fundamentals are little changed while demand hangs in the balance as Chinese and Indian retail trends are at an inflection point,” Citi said in a report released late Sunday. “In the absence of strong structural trends, we expect gold price pain before gains.”
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Citi sees gold easing to a second-quarter average of $1,135 before recovering to $1,180 in the final three months of 2017. Silver is seen averaging $15.50 next year.
The bank sees a 65% chance of its base-case scenario, which is for the Federal Reserve to hike interest rates once in December and possibly two times in 2017, if macroeconomic data remain strong.
“The strong U.S. dollar outlook post-Trump and back-up in bond yields is the main driver of our bearish price outlook for 2017,” Citi said. “But geopolitical tensions — including risks of Euroland breakup —
persist, with a slew of elections and referendums on the horizon. But a potential inflation bid may buttress levels above $1,100/oz.”
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