Macquarie lowers FY gold price forecast, higher US rates priced in

Otmane El Rhazi from The Bullion Desk.

Increasing evidence that the gold market is pricing in a prospective rise in US interest rates has prompted Macquarie to lower its price forecast for 2015.

The bank lowered its full-year average price forecast to $1,231 per ounce, down 1.5 percent on its previous prediction, while keeping its 2016 forecast unchanged at $1,359.

It lowered its second-quarter expectation by 2.9 percent to $1,165 per ounce, its third-quarter forecast to $1,250 and its fourth-quarter estimate to $1,290.

The bank also lowered its silver price forecast by 0.7 percent to $17 per ounce, with the third- and fourth-quarter numbers down 1.4 percent at $17.25 and $18.25 respectively. For 2016, it left its prediction unchanged at $20.

Investors are increasingly pricing in a first rise in US interest rates, which have been near zero since December 2008, at some stage in 2015, Macquarie believes.

While an increase had been expected at the start of the second quarter, a run of forecast-missing data indicating in particular some slack in the US labour market appears to have steadied the Federal Reserve’s hand.

The US central bank recently removed all references to forward guidance in normalising policy, instead stressing the importance of data and the gradual reduction in labour market slack.

Higher interest rates increase the opportunity cost of holding gold, pushing investors into more yield-bearing assets such as bonds and equities. After the initial rise, market participants will look to gauge how quickly the Fed will raise rates.

Macquarie’s forecast suggests that gold will begin to recover after the Fed raises rates – the price is starting to front-run this outturn, rising above $1,200 per ounce in Wednesday afternoon trading but little changed from the start of the year.

It peaked at $1,307.90 earlier this year and bottomed out at $1,142.90 but has since struggled to gain much momentum.

(Editing by Mark Shaw)

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