(Kitco News) Gold prices are starting to look overshot at the beginning of 2020, which is why ABN AMRO is warning of a possible price correction in the coming weeks while remaining bullish on the yellow metal long-term.
“Prices have advanced already significantly … Gold prices are at our September target, silver at the December target and platinum at our June target,” the Dutch bank’s senior FX & precious metals strategist Georgette Boele said in a report published on Friday. “We continue to expect a price correction in the coming weeks and months.”
The first month of the year is traditionally a good one for gold prices, but it does not mean that the precious metal will continue to steadily climb higher, the report stated.
“A good start to the year is not a guarantee of higher prices at the end of the year. So, we would wait and look for a correction to take place,” Boele wrote.
Net-long gold positioning is overcrowded and has been for some time now, added the strategist.
“Net-long futures positions and ETF positions in gold are close to all-time highs. Investor positions in silver are also excessive, and net-long platinum positions are now at an all-time high. So being net-long gold, silver and palladium is a crowded trade,” she noted. “Total outstanding positions in gold is close to 85% of annual supply (mining and recycling); for silver it is more than 90%, and for platinum close to 80% of annual supply. These are massive positions that can come to the market as soon as investors change their minds.”
On the long-term basis, however, Boele is bullish on the yellow metal, projecting for prices to rise towards the year-end and in 2021.
Some of the key drivers will be lower U.S. dollar, negative-yielding debt, low-interest rate environment, and increased physical demand, the report pointed out.
“We expect a lower U.S. dollar over time, and this is one of the major drivers of gold and silver prices. Second, as long as the amount of negative-yielding government bonds is substantial, precious metals and commodities are attractive to invest in (not negative-yielding). Third, major central banks will likely continue to support their economies, and higher official rates are nowhere on the horizon. Fourth, we expect some pick up in jewelry demand from China (positive for gold, silver and platinum),” Boele explained.
In terms of price projections, ABN AMRO sees gold prices trading at $1,600 an ounce by Q4 and then rising to $1,750 an ounce by the end of 2021.
