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Gold likely to average $1,307 in 2018, $1,351 in 2019

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NEW YORK (Scrap Register): Federal Reserve’s rate hikes are not “be-all and end-all” for gold prices, said RBC Capital Markets, projecting to see gold significantly climb next year as investors start to take market uncertainties seriously.

Conventional assumption that rising rates are negative for gold does hold, but Fed’s rate increases are just an obstacle, not the main driver for the yellow metal, said RBC’s commodity strategist Christopher Louney.

“This comes back to the idea that rates are a headwind and not the be-all and end-all. So even if we do get these rate increases this year and throughout next year, gold prices can still climb on the back of it given a number of other factors at play,” Louney said in a video posted on RBC Insights page this week.

The relationship between higher rates and gold is not a symmetrical one, which means that not all increases or decreases in rates will translate into equal increases or decreases in gold price.

RBC is expecting to see another three rate hikes this year and four rate hikes next year.

The last rate hike in 2018 is not entirely priced in yet, which could lead to lower gold prices in the end of the year, Louney noted but added that 2019 will be a much better year for the precious metal.

“In our view gold will average $1,307 in 2018 and $1,351 in 2019. We term this a cautiously constructive view,” he said. “There are a number of macro headwinds at play, there are buoyant equity levels, dollar off its lows and rising rates. However, these are just headwinds.”

Investors must remember that gold prices have “some underlying current” behind them, which will boost the yellow metal’s level to $1,351, according to RBC’s analysis.

“We do think the risk is skewed to the upside given the proliferation of uncertainty in the market and a number of uncertainties that are just out there,” Louney said.

On top of that, the markets will begin to view global uncertainty as a serious threat next year. This will be a significant shift in market sentiment, as most of this year’s risks had little impact on gold because traders were not shaken by any geopolitical tribulations.

“While the market has become skeptical of uncertainties, we do think there is scope for skepticism to subside and for people to really appreciate the uncertainty in the market and for that to really filter through to gold prices overall,” Louney pointed out.

In the meantime, gold trimmed some of its daily losses after touching a fresh six-month low earlier in the session on Thursday. August Comex gold futures were last seen trading at $1,269.60, down 0.38% on the day.

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