Gold to leave three-year rout behind as Fed rate expectations fade: poll

After three straight years of losses, analysts are finally prepared to say gold prices have found a bottom, with rising prices seen this year and next as concerns over the pace of U.S. monetary policy tightening fade.

Gold analysts polled by Reuters have hiked their forecasts for the precious metal by nearly $100 an ounce since the start of the year after it posted its biggest quarterly rise in nearly 30 years in the three months to March.

The survey of 30 analysts at banks and trading houses carried out this month returned an average 2016 gold price forecast of $1,209 an ounce, up from $1,118 in a similar poll in January. Last year, prices averaged $1,159 an ounce.

They are expected to rise steadily this year, peaking at an average $1,250 an ounce in the fourth quarter, the survey showed, before extending gains to average $1,300 an ounce in 2017. That would be its highest annual average since 2013.

“The chief supportive factors are the shift in Fed stance, the weaker dollar and the prospect of inflation,” Macquarie analyst Matthew Turner said. “The first two have raised the base price, the third is why we expect higher medium-term prices.”

Gold has already climbed 16 percent so far this year as expectations for an imminent hike in U.S. interest rates faded. Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets, while boosting the dollar. Gold is also a traditional hedge against inflation.

The Fed is expected to lift rates in June and again by the end of this year, a Reuters poll showed last week, against expectations in December for four hikes this year. [FED/POLL]

The poll respondents also hiked their average silver price forecast for 2016 by nearly 5 percent from the start of the year to $15.50 an ounce.

As with gold, it is expected to peak in the fourth quarter, at $16.00 an ounce, before rising to average $16.50 an ounce in 2017.

Silver may yet have more upside than gold after lagging the yellow metal in the first quarter. The ratio of the two metals reached its highest since 2008 in February, but has dropped sharply back as silver rallied this month.

“The gold/silver ratio has risen significantly over the past few years,” Stephen Walker, analyst at RBC Capital Markets, said. “We believe that over the longer term, this multiple should contract and regress towards the mean.”

The metal has benefited from sharp inflows into silver-backed exchange-traded funds, which have seen their holdings increase by more than 1,200 tonnes since the beginning of March.

Increased investor interest has been driven by a perception that the metal had become undervalued compared to gold, analysts said, and could benefit along with industrial metals from a recovery in the global economy.

“Later in the year we forecast silver will eventually catch up with gold, helped by bargain hunting purchases and improving industrial commodity prices,” Metals Focus analyst Nikos Kavalis said.

(Reporting by Jan Harvey; Editing by Veronica Brown and Susan Thomas