That is despite an 8 percent rise in gold prices in the first quarter, largely due to concerns over closely-fought elections in the euro zone, tensions between the United States and North Korea, and speculation that the Federal Reserve will take a cautious approach to interest rate hikes this year.
Those factors remain supportive, but are losing their power to drive prices higher, analysts said. "We think that markets are being overly dovish on the outlook for US monetary policy," Capital Economics analyst Simona Gambarini said. "We expect the Fed to hike interest rates four times in 2017." "What's more, the victory of Mark Rutte at the Dutch elections in March, coupled with the likely win of Macron at the upcoming French election, should see fears of an imminent break-up of the euro zone subside," she added.
Gold is often bought as a hedge against risk, as it is seen as an asset that holds its value when volatility in other markets picks up. It is highly sensitive however to rising US interest rates, which lift the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.
Prices are forecast to push higher towards the end of the year, averaging $1,275 an ounce in the fourth quarter, before rising to an average $1,300 an ounce next year, the poll showed. That would be its strongest year since 2013. Silver prices are also forecast to rise throughout the year, averaging $18.42 an ounce in the fourth quarter and $18.97 in 2018, in what would be its strongest price annual performance in three years.
The 2017 forecast of $17.98 is 1.5 percent above the view delivered by the January poll. "With the US economy now on more certain economic footing and the Fed poised on a path to unwinding easy monetary policy, we would expect silver to outperform gold," RBC Capital Markets analyst Stephen Walker said.
Copyright Reuters, 2017