Precious metals monthly – Downtrend to remain in place

by: Georgette Boele

141202-Precious-Metals-monthly1.pdf ()

We have made adjustments to our forecasts, reflecting longer gold price weakness

We remain negative on the outlook for precious metal prices, in particular on gold prices. In addition, we expect a divergence between gold on the one hand and silver, platinum and palladium on the other. So what has changed? We have made an adjustment in our Fed view for 2015 reflecting less aggressive rate hikes. However, a step up in the pace of Fed rate hikes in 2016 will lead to more US dollar strength and lower gold prices in our view. As a result, we are now anticipating less gold price weakness in 2015, but more weakness in 2016 (compared to our previous forecast of a recovery in 2016). Our new year-end gold forecasts for 2015 and 2016 are 900 USD per ounce and 750 USD per ounce, respectively. It is likely that these low gold prices will result in a reduction of supply of unprofitable mining operations. This in turn will probably result in a tightening of the gold supply and demand balance and trigger a recovery in gold prices after 2016.

 Weakness in the near term for cyclical precious metals followed by a recovery afterwards

The more cyclical precious metals (silver, platinum and palladium) will be dragged down by gold price weakness in the near term in our view. In addition, the appreciation of the US dollar and  higher US interest rates should hurt these precious metal prices as well, especially in the near-term (up to 6 months). However, at some point in time the positive outlook for the global economy should result in stronger industrial demand and/or improved car sales demand for these precious metals. This should then become the dominant driver. Therefore, we expect these cyclical precious metals to recover again, during the course of 2015 and 2016.

20141202 - PM monthly