Gold to move toward $1,400/oz by late 2019: TD Bank

San Antonio (Platts)--11 Jun 2018 626 pm EDT/2226 GMT

Gold prices will trend toward $1,400/oz and silver toward $19/oz by late 2019 as real interest rates stabilize and the US dollar weakens, Bart Melek, director of commodities strategy at TD Bank, said Monday.

COMEX gold for August delivery closed 50 cents/oz higher Monday at $1,303.20/oz, while COMEX silver for July delivery increased 21.1 cents/oz to end the day at $16.952/oz

"Generally speaking, we're fairly positive on the precious metals space over the next several years, and one big factor is low real [interest] rates," Melek said in a presentation at the International Precious Metals Institute 42nd Annual Conference in San Antonio.

"We don't believe interest rates, globally and in the United States in particular, will get to restrictive levels unless there is some sort of inflation accident that we don't think is about to happen," he said.

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Gold prices tend to rise as interest rates fall or remain low for prolonged periods of time.

Melek said he expects the US Federal Reserve to raise interest rates this week and again later in the year, and maybe twice or even once in 2019, though that remains uncertain.

For now, however, real interest rates remain negative and are unlikely to change soon, even as the European Central Bank holds talks this week on how it will wind down its asset purchases.

The Fed is likely to maintain its relatively dovish approach to rates, putting modest pressure on the dollar, Melek said.

"Our view, ultimately, is that the US dollar probably towards the third and fourth quarter of 2018 will start to weaken," he said.

If the dollar weakens, the opportunity costs of carrying gold decline in US dollar terms. "That means if I hold physical inventories, I don't have a lot of pressure to get rid of it and supply the market," he said.

Declining or stagnant production levels are also supporting precious metals prices, Melek said. Silver production fell last year, "and we don't see much of a pick up next year or the year after that," he added.

Gold production is likely to remain flat for the next few years, while production of platinum and palladium is declining, Melek said.

"As we get into the late part of the expansionary cycle, we should see a general tightening up in the fundamentals. Certainly that demand continues to be strong and if interest rates continue to be where we think they are, it's going to be very difficult to have investment stocks make it into the market and balance it," he said. "I think that could be a catalyst for higher prices."

--Nick Jonson,

--Edited by Keiron Greenhalgh,

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