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Are Precious Metals Prices Headed Up or Down in 2018?

John-Rothans

Written by John Rothans

Jan 29, 2018

What direction are gold and silver headed in 2018 and what should you watch for? Get your precious metals price forecast from U.S. Money Reserve, America's Gold Authority®. We've gathered the top insights from industry leaders and secured an exclusive interview with Alistair Hewitt, director of market intelligence at the World Gold Council (WGC). The forecasts are in, but the decision is yours: Will gold prices soar? Will silver prices surge higher?

Gold Price Forecast for 2018

It's going to be a golden 2018, say many economists and analysts.

While brows furrowed over the rise of Bitcoin and North Korean missiles, gold kept its cool and steadily moved ahead in 2017, “delivering double-digit growth in the first 11 months alone,” notes John Reade, chief market strategist at the World Gold Council.

Gold price movement in 2017 was “extremely orderly” and remained “relatively narrow, apart from the geopolitically-inspired move above $1,350/oz. in September,” explains Reade. Due to a weaker U.S. dollar, anxiety around a stock market pullback, geopolitical instability, and reassuring price momentum, gold performed “remarkably well” in 2017, adds a later WGC report.

So, what could be ahead for gold prices in 2018?

  • London bullion trader Sharps Pixley predicts lows of $1,260 an ounce and highs of $1,400.
  • Dutch bank ABN Amro expects a gold price of $1,400 an ounce by the end of 2018.
  • Price Futures Group also anticipates gold prices in 2018 averaging around $1,400 an ounce, and perhaps hitting $1,500.
  • Goldman Sachs sees gold momentarily dipping to around $1,200 an ounce in the middle of 2018, but rising to $1,375 by the end of 2020.
  • TD Securities looks for gold to average around $1,313 an ounce in 2018, then average $1,325 by the fourth quarter of 2018.
  • Global banking group Macquarie predicts gold hitting “$1,400 in 2018 for the first time in five years.”

Remember, “like any asset, the gold price can move sharply for many different financial reasons, such as changes in interest rates, inflation expectations, or stock market movements, and these can catch [buyers] off guard,” warns the WGC’s Alistair Hewitt.

Don't get caught off guard. With gold prices potentially topping $1,400—if not $1,500 an ounce—what turning points should you keep an eye on?

Gold Market Trends to Watch

Global income growth

Ongoing research by the WGC shows that economic growth is paramount to gold demand.

“As incomes rise,” writes the WGC, “demand for gold jewelry and gold-containing technology, such as smartphones and tablets, rises. Income growth also spurs savings, helping increase demand for gold bars and coins.”

The economies of the world's two largest gold markets, China and India, are both expected to grow in 2018. Couple this growth with expansion in the European and U.S. economies and the horizon looks bright for gold.

Gold supply constraints

The law of supply and demand applies to almost any resource, whether milk, oil, diapers, or gold. Limited supply and high demand pushes prices higher. High supply and low demand? Low prices.

“While it's likely mine production will remain elevated in 2018, many analysts expect mine production to come under downward pressure in the years to come,” says Alistair Hewitt.

In his exclusive Q&A session with U.S. Money Reserve, Hewitt went on to explain that “following the gold price drop in 2013, mining companies slashed spending on searching for new gold deposits, and the pipeline of new production looks thin.”

Hewitt says, “The important message for a gold [buyer], however, is that mine production is constrained, and this scarcity supports the case for gold.”

Strength of U.S. dollar

Gold and the U.S. dollar generally have an inverse relationship. When the dollar is strong, it tends to discourage gold buyers as the metal becomes more expensive to purchase. When the dollar is weak, gold is cheaper to purchase in other currencies.

The dollar dropped 9.9 percent in 2017, reports NewsMax, slumping to its worst performance in 14 years. Will the greenback make a comeback in 2018? Analysts aren't too optimistic.

Goldman Sachs expects a “soggy dollar.” UBS and Lombard Odier expect the euro to gain against the dollar, and strategists at French Bank Société Générale see the dollar stumbling another 10 percent, reports Quartz.

Should the dollar continue to weaken, it could support higher gold prices in 2018.

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“Gold can protect against currency weakness and stock market volatility,” says World Gold Council’s Alistair Hewitt. For long-term gold owners in the U.S., “[gold] makes them money: around an average of 10% per annum since 1970.” Make your move into gold today and sign up to receive U.S. Money Reserve's Free Gold Information Kit!

Geopolitical turbulence

ScotiaMocatta, the metals banking division of Canada's Scotiabank, is keeping an eye on the Korean peninsula. If the situation worsens, bouts of safe-haven buying could push gold prices higher in 2018.

Tensions in the Middle East, particularly between Iran and Saudi Arabia, are also potential safe-haven drivers. The rivalry between the two countries could drive up global oil prices and indirectly impact inflation, reports Business Insider. If they materialize, these geopolitical risks could offer sustained support for gold prices for the duration of the conflict—a timespan that’s anyone’s guess. Brexit took center stage in 2017, but concerns over the European Union breaking up have mostly subsided, says ScotiaMocatta, who does “not expect European politics to provide much support for gold” in the coming year.

Fewer barriers to buying gold

Transparency and efficiency are broadening access to gold buyers everywhere, along with geo-specific policy changes.

At the end of 2016, the number of potential gold buyers in the world increased by about 1.6 billion as gold was formally classified as an acceptable asset in Islamic finance. The new guidelines increased the number of Sharia-compliant gold products, placed a greater focus on the role of physical gold in transactions, and offered the Islamic finance industry a greater role in global gold price discovery.

In India, the world's second largest gold market, plans are underway to develop a gold exchange, improve quality assurance, and “ensure customers are well served by the gold industry,” says the WGC.

Moving north, Russia may be updating its tax code to make it less cost prohibitive to buy gold, reports the WGC. Current tax rules make it almost impossible to buy gold, as individual and institutional purchases of gold bars are subject to value added tax of 18 percent, the highest rate in the world.

Across the U.S., more and more states are standing up for gold and silver with sound money legislation that allows residents to use precious metals currency instead of dollars.

Combined, these falling barriers could support rising gold prices in 2018.

Silver Price Forecast for 2018

The year 2017 was a roller-coaster ride for silver. Silver prices rode high on optimism until the summer, when prices fell to a 1.5 year low, notes Kitco.com.

While silver buyers shouldn't expect fireworks for silver prices in 2018, the general sentiment among analysts is that silver prices will remain steady, if not steadily increase throughout the year.

In a FocusEconomics report listing forecasts from over a dozen different outlets, the lowest 2018 average silver price was $16, the highest was $21.30, and the consensus silver price forecast came in at $17.80.

Highlighted below are forecasters absent from the poll, most of whom support FocusEconomics' findings.

  • Sharps Pixley predicts an average silver price of $18.08 an ounce, with possible highs of $19.10 and lows of $15.60.
  • Multi-national bank HSBC anticipates an average price forecast for silver of $17.92 an ounce in 2018, a gain of 4 percent from current prices.
  • CIBC World Markets predicts silver trading between $17 and $18 an ounce by the end of 2018.
  • Goldman Sachs sees silver prices remaining flat over the next six months, and then increasing over the next 12 months. The bank lists silver price forecasts of $16.20 (3-month), $16 (6-month), and $17.20 (12-month).
  • Bank of Montreal looks for silver prices to rise to $19 an ounce in 2018, averaging the year around $17.78 an ounce, with a long-term forecast of $20 an ounce.

With 2018 silver prices potentially edging toward $20 an ounce, what market trends should you watch?

Silver Market Trends to Watch

Silver supply

This one remains a point of contention. Some analysts, like Precious Metals Focus, anticipate an increase in mine output and a surplus in the supply of silver. Others predict a deficit in the supply and ongoing contraction of mine output.

Maria Smirnova, senior portfolio manager at Sprott Asset Management, says that the world will see a deficit of 50 million ounces of silver over the next three years as mine output declines.

“We're just not seeing silver discoveries. We're not seeing a lot of viable future mines in silver. It's a problem, and that's what reinforces our positive view on the silver prices,” explains Smirnova.

More industrial demand

Analysts are optimistic that renewed industrial demand, especially in the photovoltaic and electronic sectors, will push silver into the spotlight.

“We expect silver to move moderately higher in 2018 and 2019 based on strong industrial demand and limited supply,” says James Steel, chief precious metals analyst at HSBC.

Jewelry and coin demand

The Silver Institute also anticipates a steady increase in consumer demand for both silver jewelry and silver coins in 2018, partially due to an increase in Indian silver imports.

The Institute points out that silver jewelry remains an attractive and versatile option for fashion-conscious consumers who may not be able to afford gold. They predict jewelry consumption to expand by 4 percent, following a rise of 1 percent in 2017.

As far as silver coins are concerned, the Institute expects funds to shift away from cryptocurrencies, equities, and bonds, and back into precious metals—a shift that's likely to benefit physical silver.

Trust physical gold and silver

From interest rates to missile threats, the year 2018 is sure to be filled with ups and downs. Across the precious metals market there’s one important wild card to watch, cautions Hewitt, and that’s how the financial markets fare in the U.S.

“How financial markets respond to rising interest rates and the Fed's shrinking balance sheet will be something to be alert to. As the Fed reigns in its ultra-loose monetary policy, it is reasonable to presume these trends will reverse. Some asset prices may come under pressure, financial market volatility may pick up and risks may re-emerge. But no one really knows how this will play out as this has never been done before—it’s certainly an area to keep an eye on.”

Watch and see for yourself. Physical gold and silver may be a few of things you can rely on, along with the guidance and expertise available to you through U.S. Money Reserve, America's Gold Authority®. Call 1-844-307-1589 with any questions you have about movement in the precious metals market. Our knowledgeable Account Executives are standing by to give you a rundown on major events influencing today's markets.

For a wealth of gold research and insight, visit https://www.gold.org/.

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