SocGen forecasts gold to average just $925/oz between 2016-2019

Otmane El Rhazi from The Bullion Desk.

The gold price has fully given away its early year gains and should head lower as the dollar continues to strengthen and the US Federal Reserve inches closer to tighter monetary policy, Société Générale said in a report.

The French Bank sees gold averaging just $1,150 per ounce in the second quarter, with weakness extending into the fourth quarter wherein it will average $1,050.

For the full-year, SocGen did lift its 2105 forecast to $1,130 per ounce from a previous $1,025, but that’s only due to some unexpected strength during the first quarter.

Gold for April delivery on the Comex division of the New York Mercantile Exchange is currently trading at $1,170 per ounce.

“We continue to expect that the Fed will raise interest rates by 25 basis points in June 2015, with this more likely followed by another hike of a similar magnitude later this year,” SocGen said.

“As the labour markets gain traction and with the forecast for GDP growth at 3.5 percent this year, we see a high probability of a more aggressive rate hike during next year, to an extent that the interest rate cycle could peak at four percent by the end of 2017,” it added.

Meanwhile, key consuming nations such as India and China have not rushed in the physical markets because they still have lower price expectations.

“Thus, until an uptrend gets established, consumers and investors are likely to only ‘test’ the market at various lows, meaning high volume purchases are unlikely,” SocGen said.

In terms of supply/demand fundamentals, gold production from mines should decrease this year by around nine percent, while global demand will grow at near six percent, eventually leading the market to a supply surplus of some 100 tonnes.

“That said, we believe the macro environment will steer the gold price this year as opposed to supply and demand dynamics,” the report said.

“We expect the gold price to continue to fall, as the dollar strengthens further and the gold bear market continues, leading to the metal averaging just $925 between 2016 and 2019,” it concluded.

(Editing by Tom Jennemann)

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