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Commerzbank Sees $1,300 Gold At Year-End, $1,400 In 2018

 (Kitco News) - Commerzbank looks for gold to finish 2017 around $1,300 an ounce but climb to $1,400 next year.

The bank’s year-end forecast is below the current price of gold, which was last trading around $1,338 an ounce. Analysts said they anticipate more gains in the foreseeable future but then a decline into year-end as traders start factoring in another U.S. rate hike.

“After overcoming the 2017 highs from mid-April, early June and mid-August at around $1,300
per troy ounce, and in view of the forthcoming debate in September on raising the debt ceiling,
the gold price seems set to make further initial gains,” Commerzbank said.

However, analysts said they also do not anticipate the “worst” possible scenario unfolding in the U.S. Going forward, they suggest physical demand in Asia may be held back by recently higher gold prices. Further, unlike most market players, Commerzbank looks for another Federal Reserve rate hike in December.

 “Once the market starts to factor this in, gold should come under renewed pressure,” Commerzbank said. “We are therefore sticking to our year-end forecast of $1,300 per troy ounce. We envisage further gains in 2018 to $1,400 per troy ounce.”

“The Fed is likely to raise rates a total of three times also next year. However, this does not necessarily rule out a rise in the price of gold, this year showed. Since at the same time inflation can be expected to increase somewhat, U.S. real interest rates will remain low in 2018 too, which should boost the demand for gold.”

Meanwhile, analysts said the European Central Bank likely will be scaling back its bond purchases gradually, but is not likely to raise interest rates, meaning that real rates in the euro zone will remain negative. “This too suggests a rise in the price of gold in euros,” Commerzbank said.

Gold has recently climbed to its highest level in roughly a year. Commerzbank attribute this largely to weakness in the U.S. dollar, which in turn has been pressured by declining expectations for more Federal Reserve rate hikes and ongoing political wrangling within the U.S. government. The debt-ceiling dispute has also added support, analysts said.

Commerzbank said silver should follow gold, with analysts calling for $18-an-ounce silver at year-end.

“Since so far it has followed gold's upward course at a slower rate, we see some scope to catch up,” Commerzbank said. “Additional support can be expected from industrial demand, aided by a rise in Chinese imports and the stronger manufacturing PMIs [purchasing managers indexes] in almost all the main economic regions, this being the main demand component for silver.”

Analysts said there has been no clear correlation this year between exchange-traded-fund demand and the price of silver.

“What has happened is that when prices have been rising, silver ETF holdings have been sold, and bought again when prices have fallen,” the bank said. “This anti-cyclical approach by ETF investors has thus prevented major price fluctuations. That said, this could change if the silver market were to tighten sufficiently as a result of stronger industrial demand and a decrease in mining and recycling supply, possibly giving rise to a positive correlation between ETF demand and the silver price.”

By Allen Sykora

For Kitco News

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