BMO Capital Markets: Macro Backdrop To Keep Gold In Higher Range

Kitco News

BMO Capital Markets says the current macroeconomic backdrop is favorable for gold, although market participants have largely already factored in the most favorable development – likely interest-rate cuts in the U.S. BMO Thursday hiked its full-year average gold-price outlook by 3% to $1,332 an ounce and looks for a $1,380 average in the third quarter and $1,350 in the fourth. “Tactically, we have a precious bias given current macroeconomic conditions,” BMO said. “We believe gold has moved into a new range. And while much of the recent monetary policy shift was priced in very quickly, we believe asset allocation flows. And will continue to offer near-term support.

“In a world where overall assets under management are rising, the environment is not in risk-on mode. This is a helpful scenario for gold.”

The central banks of many nations now have an easing bias, BMO pointed out. This tends to underpin commodities – boosting precious metals quickly and industrial metals more slowly, analysts continued. In the case of the U.S., BMO looks for two 25-basis-point rate cuts. This was in the second half of 2019, with the first in July.

“However, with all major economies pointing the same way, this may not be accompanied by aggressive USD [U.S. dollar] weakness, given a lack of other obvious currency alternatives,” BMO said. “Even so, the guide towards looser monetary conditions has been enough to push gold into a new range, and one we believe it will hold while rate cuts persist.”

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