A stronger US dollar and rising US Treasury yields, in both real and nominal terms, will weigh on the prices of gold, according to strategists at Capital Economics whose XAU/USD year-end forecast is $1600.
See – Gold Price Analysis: XAU/USD set to recover towards $1835 – Credit Suisse
The outlook for physical gold demand is brighter
“Long-dated US real yields have ticked back down, pushing up the price of gold. But we don’t think that this will persist. In fact, we expect US real yields to rise further before long, increasing the opportunity cost of holding gold. This underpins our view that investment demand for gold will fall, putting downward pressure on its price. Indeed, ETF holdings of gold have fallen since the start of the year as real yields have risen.”
“Our forecasts of a stronger US dollar and heightened investor risk appetite will also weigh on the gold price. Admittedly, risk appetite already appears quite high – especially in the US. But there is probably still some scope for it to rise as downside risks to economic growth related to the virus continue to fade.”
“The outlook for physical gold demand is brighter. Local prices in India and China have shifted back to a premium over global prices this year, indicating stronger domestic demand. This has been reflected in a surge in gold imports into India, and a pick-up in China’s gold imports in March. Furthermore, reports of an increase in gold import quotas for banks in China suggest that imports could surge in April and May. Ultimately though, while this will support the gold price at the margin, we don’t expect it to offset lower investment demand, and forecast that the gold price will fall to around $1,600 per ounce by end-2021.”