Investors should expect to see a slow grind higher in the precious metals market next year as value in the sector continues to grow, according to one research firm.
Capital Economics continues to see the potential for gold and silver as a slowing U.S. economy forces the Fed to halt its tightening cycle sooner than markets are expecting.
Ross Strachan, senior commodity economist at the U.K research firm, said in a telephone interview with Kitco News that lower growth expectations will weigh on equity markets while bonds will suffer from lower than expected interest rates.
“With bonds and equities looking less attractive next year we think investors will turn to gold and silver, looking for value,” he said
In its updated forecast, the firm sees gold prices ending 2019 at $1,300 an ounce with silver prices pushing to $17 an ounce. The latest forecast is relatively unchanged from their previous forecast. The forecast represents a 6% and 20% gain, respectively. February gold futures last traded at $1,228.20 an ounce, up 0.69on the day; meanwhile, silver prices last traded at $14.30 an ounce, up 1.53% on the day.
“You are not going to see fireworks in gold but you will see more allocations into safe-haven assets,” Strachan said.
Strachan added that investors should expect to see gold prices rally in the second half of the year as they expect to see the last two rate hikes from the Federal Reserve in the first half of the year.
Looking beyond next year, Capital Economics sees a potential reversal in U.S. monetary policy as a further catalyst for gold and silver. The firm sees gold pushing to $1,400 an ounce by the end of 2020 with silver prices hitting $18 an ounce.
Although Capital Economics remains positive on gold going forward, Strachan noted that the market is still missing one ingredient to drive prices above the $1,300 boundary: higher inflation.
“While inflation provides an upside risk to gold, we don’t see the threat of the economy overheating,” said Strachan. “Inflation won’t be a major factor next year.”