Gold could lose some of its lustre as a safe haven asset going into the new year, with global growth set to improve, according to OCBC economist Barnabas Gan.
Mr Gan told a briefing yesterday that he expects gold prices to be at US$1,200 an ounce for what is left of the year, and even lower at US$1,100 by the end of next year.
"There is confidence in the global growth story," noted Mr Gan, citing the International Monetary Fund's 3.2 per cent growth projection for the world next year, which is higher than this year's 3.1 per cent forecast.
"But that also means gold prices will trend lower."
Equally important are the upcoming interest rate hikes in the United States, he said. "With the US Federal Reserve most likely to raise interest rates next week... the firmer US dollar will be a very, very strong factor to limit any rally."
While the market will be dissecting the Fed's rhetoric for clues on the trajectory of subsequent rate increases, OCBC expects two more rate hikes next year to follow the one on Dec 15, which is widely expected to be a "done deal".
That said, gold "strives on uncertainties", Mr Gan noted, adding that many questions about the global growth story remain, given the rise of populist sentiment.
The yellow metal has been supported by global volatility since the start of this year, led by concerns over the Fed rate hike, the slowdown in the Chinese economy and the shock Brexit vote.
But prices have taken a beating since the start of last month, and particularly after the US election on Nov 8, amid expectations that President-elect Donald Trump will help boost growth and inflation in the American economy.
Spot prices stood at US$1,171.76 an ounce at around 5.30pm yesterday - about 10 per cent down from the US$1,305.06 on Nov 3, before prices went downhill.
Mr Gan also spoke about palm oil prices, which have rallied strongly in recent months. He expects prices to hit a peak soon - likely reaching RM3,250 per tonne by the end of the year - and ease going into the new year, sliding to RM2,650 by the end of next year.
"The signs are indeed pointing towards a year of ample supplies and weak demand. The resultant effect to this likely phenomenon would be for palm oil prices to correct lower into 2017 in order to stay competitive with both low gas prices, and alternative oils such as rapeseeds and soya oils," said Mr Gan.