BNP Paribas: Negative on precious metals
Unlike other banks, BNP Paribas has a negative bias for gold going into 2019. Harry Tchilinguirian, global head of commodity markets strategy at BNP Paribas, is negative on gold (SGOL)(GLD) and other precious metals (JNUG) in 2019 and prefers holding Treasuries (TLT) to gold and silver. In this part of our series, we’ll discuss what factors are driving this bearish outlook for gold from BNP Paribas.
Real interest rates to steal gold’s shine in 2019
BNP’s Tchilinguirian emailed his comment to Kitco News, saying he expects gold prices to average $1,145 per ounce and silver prices (SLV) to average $14.2 per ounce in 2019. Among major banks, this is one of the most bearish price forecasts for precious metals for 2019. The major reasons cited by BNP Paribas for this outlook are muted inflation expectations and higher real interest rates. Tchilinguirian commented, “With inflation expectations, expressed by the 5year/5year forward breakeven rate, falling rapidly since mid-October, we think real rates will move higher which is negative for [precious metals] in terms of the opportunity cost of holding the non-yielding asset.”
Recent strength in gold is a temporary move
Despite the recent strength in gold prices, BNP remains bearish on the metal, believing that the recent move was temporary, fueled by weaker equity markets (SPY)(IVV). It sees the equity market sell-off as a correction rather than a deeper problem.
Tchilinguirian also points to the lackluster demand for gold in gold-backed ETFs and other products as the proof of the metal’s lack of safe-haven appeal. Tchilinguirian also points to the monetary policy divergence between the United States and the rest of the world as the reason for the US dollar (UUP) to strengthen, which would again be negative for gold.
BNP’s prediction could come true if its assumptions holds true for 2019. However, as the Fed turns more dovish on rate hikes in 2019 due to growth concerns, the divergence between the United States and the rest of the world might reduce, which would be negative for the US dollar and could act as a positive catalyst for gold.