Britain's shock vote to leave the European Union has led analysts to raise their gold price forecasts again this year, after the decision shook up financial markets and sparked a rally in the precious metal to two-year highs. A poll of 25 analysts and traders over the last two weeks returned an average price forecast for this year of $1,280 an ounce, up from $1,209 in a similar survey in April, and nearly 15 percent higher than a poll at the start of the year.
Gold prices, which have averaged $1,230 so far this year, are expected to average $1,340 in the third quarter and $1,350 in the last three months of the year. In 2017, they are seen rising to $1,363 an ounce. "The Brexit vote has resulted in increased uncertainty and fears over political, financial and economic turbulence, not just in the UK but across the continent, with potential spillovers for the global economy," Societe Generale analyst Robin Bhar said. "(That has led to) safe-haven buying."
Gold had already been lifted earlier in the year by expectations that the Federal Reserve would hold off on further interest rate hikes, after increasing rates for the first time in nearly a decade in December. Rising rates tend to pressure gold, as they increase the opportunity cost of holding non-yielding bullion. The Brexit vote has raised the chances of the Fed postponing hikes, while other central banks in Britain, the euro zone and Japan may ease further, economists say.
"Expectations for more easing ... and delays in rate hikes by the Fed will be key determinants of the gold price this year," Capital Economics analyst Simona Gambarini said. "US presidential elections in November could also add to the uncertainty." Expectations for silver, which has surged by 50 percent this year, have also been revised upward, though analysts are cautious over the threat of a sharp retracement after prices surged by a third in just over a month.
The poll returned an average silver price forecast of $17.09 an ounce this year, up 10 percent from April. So far this year the metal has averaged $16.10 an ounce, though recent sharp gains have taken it to near two-year highs at $21.107. Next year the metal is expected to average $18.50, its highest annual average since 2014. "Industrial demand is not as bad any more, investor demand is there as well, and at the same time you have a decline in mine supply," Bank of America Merrill Lynch analyst Michael Widmer said. "The market is really rebalancing, and that is the basis of our call that $20 an ounce this year is feasible."
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