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Gold prices seem poised for further boost in 2018

29 Dec 2017

By David Brough

December 29, 2017 - Expectations of continued weakness in the U.S. dollar are likely to give support to gold prices in 2018, potentially setting the stage for another strong year by the precious metal.

Buoyant Asian demand and bullion’s appeal as a safe-haven asset are also likely to boost gold.

Dollar-denominated gold rallied to a one-month high in late December, underpinned by the softening dollar, which meant that the yellow metal was cheaper for buyers holding other currencies.

Investor worries over a U.S. tax overhaul, which could boost the fiscal deficit, have dragged on the greenback.

The dollar also fell after the U.S. Federal Reserve raised interest rates, as widely expected by financial markets, in December and signalled three more rate raises in 2018 as the U.S. economic recovery gains momentum.

The Fed move is believed to have contributed to a fall in the gold price to a five-month low of US$1,235.92 per ounce in mid-December.  Later the yellow metal bounced higher, lifted by the weakening dollar.

In the final days of December, the dollar index was on track to fall more than 9 percent in 2017, and many analysts see further dollar weakness ahead, which is bullish for gold.

Gold prices were heading for a rise of around 12 percent in 2017, potentially their best year since 2010.

“My prediction for the gold price at this time next year is a conservative US$1,425 (per ounce) – around 10% up, coincidentally a somewhat similar increase to the current year,” wrote respected gold market columnist Lawrie Williams of bullion broker Sharps Pixley.

“At the moment I look at gold increasing in the year ahead with Asian demand staying strong, global production weakening marginally in 2018 and the possibility of the dollar index continuing to decline.

“I would also expect bitcoin and general equities to come off their highs, perhaps drastically so, which could drive investment back into precious metals.” 

Spot gold traded up 0.1 percent at US$1,295.45 per ounce on December 29. 

Gold prices could benefit in 2018 from strong physical demand, notably in China and India, and from its safe-haven appeal to investors if tensions flare up again in the Korean peninsula or in the Middle East. 

Gold is well-known for its safe-haven status, benefiting from inflows of funds at times of heightened geo-political instability.

For UK jewellers, the value of the pound against the dollar will be a prime consideration in re-stocking gold in 2018.

If the UK government makes progress in the next stage of Brexit talks, and moves forward more quickly than expected in negotiations with the EU, the pound could strengthen against the dollar.

High volatility in the exchange rate of the pound versus the dollar will force jewellers to act promptly to re-stock their gold requirements.

Only larger jewellery houses and manufacturers tend to adopt formal hedging strategies to reduce risks from sharp swings in foreign exchange rates and gold prices.

Another major feature of 2017 has been the surge in palladium prices to a more than 16-year high to exceed platinum prices, and this trend for relatively high palladium prices looks set to remain for the near term.

Jewellers can benefit from low platinum prices, at a significant discount to gold, while challenges are likely to persist in the marketing of palladium as a jewellery metal due to its high cost compared to platinum.

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