Gold price to average $1,169/oz in 2015 – Deutsche Bank

Otmane El Rhazi from The Bullion Desk.

Deutsche Bank expects the tightening of US monetary policy to be the main driver of gold prices next year, it said.

Although the world’s leading central banks are set to act in opposing ways in 2015, the Federal Reserve, which is expected to raise interest rates after bringing its third quantitative easing programme to an end, will ultimately pressure prices lower, the bank said in a report on Tuesday.

“While some may consider the expansion in central bank balance sheets most notably in Europe and China as beneficial to the gold price, we expect US financial markets will be the ultimate driver of where gold prices are heading next year,” the bank said.

In a statement due after a two-day meeting that starts later today, the Fed is expected to shed light on future monetary policy – the phrase “considerable time” could be removed from its statement, suggesting the Fed is confident the US economic recovery is strong enough to warrant a raising of rates from their current level near zero.

“We are maintaining our bearish outlook for gold prices heading into next year. This reflects ongoing adjustments in US interest rates, equity and currency markets all of which we expect to be negative for gold,” it said.

The yellow metal will average $1,169 per ounce in 2015, it said, up 0.5 percent on its previous forecast but below its average forecast in 2014 of $1,265.

Spot gold was last at a little changed $1,197.20/1,198 per ounce, reversing strongly lower after previously recovering back towards $1,120 early this afternoon.

On the upside, with Chinese, Japanese and European economies struggling, further signs of weakness and stimulus measures may increase safe-haven buying, the bank suggested.

“More convincing could be the prospect that additional programmes of quantitative easing by other global central banks such as the ECB, BoJ and the PBoC might throw a life-line to the gold price. However, we find only a loose correlation of central bank balance sheet growth and gold price trends,” it said.

Deutsche Bank also highlighted growing concerns over world growth stemming from soft oil prices – Brent crude hit a five-and-a-half-year low of $58 per barrel this morning after OPEC’s decision not to cut oil production from 30 million barrels per day.

“We expect the falling oil price will expose the increase divergence among global central banks,” it said. “Commodity markets will therefore need to fear a further strengthening in the US dollar with precious metals and energy markets exhibiting the strongest negative correlation to the US dollar.”

Central bank buying will remain prominent in 2015, it added. This year has seen sizable purchases from central bank such as Russia, with the country alone buying up 74 tonnes from July through to September, the World Gold Council said.

“We expect the trend of global central bank gold buying will continue albeit at a slower clip than recent years,” Deutsche Bank said.

(Editing by Mark Shaw)

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