Gold prices may remain under pressure in the near term but are likely to rally into year-end and 2019 with the help of an eventually softening U.S. dollar and many other factors, says TD Securities.

'We forecast the yellow metal to average $1,225/oz in the last three months of 2018, with prices moving into the $1,300s by the end of 2019,' the Canadian bank said in a research note on Monday.

The precious metal, which has been on the defensive for much of 2018, weakened at the end of last week after the Federal Open Market Committee not only hiked U.S. interest rates by another 25 basis points but continued to hint at more tightening to come. Additionally, Italian budget uncertainty left the euro under pressure against the U.S. dollar. Precious metals tend to move inversely to the U.S. currency.

Spot gold fell as far as $1,181.05 an ounce last week, its lowest level since mid-August.

TDS analysts said they expect choppy range-bound trading between $1,180 and 1,215 per ounce in the near term.

'Indeed, fiscal stimulus and worries that rates are set to rise ever closer to the dots [based on the Fed™s so-called dot-plot] will increase the opportunity costs of holding zero-yielding assets,' TDS said. 'Until other Western central banks meaningfully tighten their policy, the U.S. dollar's strength relative to Western and EM [emerging-market] currencies is quite likely to remain a significant headwind that will suppress positioning for gold bugs. As such, we don't expect much sustainable upside in the near term, and expect prices to remain under pressure for now.'

But eventually, that should change, TDS said. The key will be a reversal of U.S. dollar strength.

'At the same time, considering that exposure is extremely skewed toward short positioning [in gold], there is a very strong case to be made for a robust rally as factors currently depressing the market, such as rate expectations, the USD and weak emerging markets, eventually reverse course and trigger a bout of short covering, TDS said.

The bank projected the dollar will start weakening 'materially' in 2019 and that real U.S. 10-year yields are unlikely to rise much above 1% as trade worries and diminishing returns on U.S. fiscal stimulus moderate optimism.

'The fast pace of U.S. debt growth even at the peak of the cycle, equity-market correction risk and emerging primary physical deficits should also serve as support,' TDS said.

Gold should top $1,300 until the final three months of 2019, TDS said.

œBut we do believe that it will be a choppy road higher due to the recent USD jump higher, and ongoing trade issues that are depressing the Chinese currency and growth expectations, TDS said. œAmbiguity surrounding how hawkish the U.S. central bank will be with over the next twelve months will create volatility and may drive prices lower still.

Source: Kitco News