View on gold goes bearish

MORGAN Stanley believes the gold price could fall further before picking up later in the year.
View on gold goes bearish View on gold goes bearish View on gold goes bearish View on gold goes bearish View on gold goes bearish

Staff Reporter

Gold fell to a 19-month low of $1184 an ounce last week and currently is only just above $1200/oz.
It has averaged $1314.50/oz so far this year, peaking at $1390/oz in January.
Morgan Stanley analysts said this week that safe haven buying in gold had diminished.
"Any hint of safe haven buying, spurred by global trade tensions and fears of escalating emerging market volatility, has been drowned out by a conflation of bearish market drivers," it said.
The fall in gold has been linked to the strength in the US dollar, which Morgan Stanley attributes to the decoupling of US assets from the rest of the world, "as the US economy defies challenges and stability concerns elsewhere and confidence in its outlook draws in overseas capital". 
Morgan Stanley has forecast a total of four US interest rate hikes this year, followed by a further two next year.
"Rising interest rates and the relative strength of US equities make non-yielding gold less attractive, further weighing on price," it said.
Adding to the pressure on gold is weakness in the physical market, while mine production in the June quarter rose by 3% year-on-year.
Morgan Stanley said the cost of production implied a floor price of around $950/oz, but noted that some producers would already be under pressure at below $1200/oz.
It didn't rule out further downside in the near-term.
However, analysts see the US dollar as overbought and expect a weakening of around 2% over the next three months.
"The slower pace of rate hikes expected through 2019 and anticipated slowdown in economic activity through the year also suggest a more positive outlook for gold," Morgan Stanley said.
"Finally, physical buying should pick up with peak jewellery season in India. 
"All these factors point to a likely recovery in gold's price through 4Q18 and into 2019, bringing it back towards $1300/oz."
Morgan Stanley is expecting the price to average $1280/oz in the December quarter and 2019.
Overnight, the gold price was fixed at $1187.31
The WTI crude oil price was up overnight at $67.90 per barrel.
In softer commodities, cocoa increased $39 per tonne or 1.69% to $2439/t yesterday from the $2310 in the previous trading session, reported. Historically, cocoa reached an all-time high of $4361.58/t in July of 1977 and a record low of $211/t in July of 1965.
Coffee increased 0.80c per pound or 0.83% to 97.20c/lb yesterday from 96.40c/lb in the previous trading session, reported. Historically, coffee reached an all-time high of 339.86c/lb in April of 1977 and a record low of 42.50c/lb in October of 2001.