(Kitco News) -Citi Research looks for gold to average $1,255 an ounce in 2014, falling early in the year on expectations for tapering of Federal Reserve quantitative easing but drawing support from continued Chinese buying.
The bank lists palladium as its favored metal for the precious complex.
Citi said investors collectively are focusing on a global economic recovery, with debate over the timing of tapering of quantitative easing by the U.S. Federal Open Market Committee considered a question of “when,” not “if.” The bank said it views March as the earliest possible date for a possible tapering announcement.
“Our expectation is that the postponement of the tapering decision by the FOMC represents only a short-term reprieve for gold,” Citi said. “The Fed’s 7% unemployment target continues to grind closer.”
Other factors prompting Western investors to reassess their exposure to gold include lower inflation expectations and a move from gold into other asset classes, said Citi. The bank pointed out that gold was down 24% for the year as of its report, while the S&P 500 index was up 24%.
However, Citi said it looks for growing Chinese physical demand to limit downside price moves.
“For 2014, in the face of expected continued negative investor flows, we project prices to slip further, averaging $1,250/oz in Q1, which will spark stronger Chinese demand, and therefore imports through 2014,” Citi said. “Chinese physical retail buying/ investment represents a key source of price support for the gold market, and we believe renewed positive buying momentum in China will prevent a wholesale rout of gold prices next year.”
Citi forecast gold will average $1,230 in the second quarter, then bounce back to average of $1,260 in the third quarter and $1,280 in the fourth. Citi then projects higher yearly averages of $1,350 in 2015, $1,370 in 2016, $1,400 in 2017 and $1,420 in 2018.
Meanwhile, Citi said it looks for silver to average $20.30 an ounce in 2014. The bank cited “largely inelastic mine supply growth” and mixed fabrication demand. Likewise, silver would also be hurt by expected QE tapering, the bank added. As is the case with gold, Citi then looks for silver to rise in future years, listing forecasts of $22.20 for 2015, $22.50 for 2016 and $23 for 2017.
Meanwhile, Citi said supply/demand fundamentals for both platinum and palladium remain “largely positive,” but the bank nevertheless favors palladium for its “more positive” auto-demand outlook and potential buying to back a planned Absa Capital exchange-traded fund in South Africa. A similar Absa ETF for platinum was launched in 2013 and quickly became the world’s largest platinum ETF, the bank pointed out.
“Palladium is already the best performing metal across both base and precious baskets, with prices up on approximately 6% over levels at the start of the year, the only metal to be in positive territory this year,” Citi said. ”We forecast that the combination of positive demand growth from the auto sector, and rising investor demand, will push prices close to $900/oz. before the end of next year, with Q4 2014 prices projected to average $850/oz.”
Citi listed a full-year average of $800 an ounce for palladium in 2014.
“Our platinum prices expectations for 2014 are somewhat muted compared to palladium, with levels expected to average $1,525/oz by Q4 next year, a 5% increase over current levels,” Citi said. For full year 2014, Citi forecast platinum will average $1,500 an ounce.
Overall, Citi Research listed a view of “neutral to bearish” for commodities in general. In the base-metals sector, copper is seen averaging $6,650 per metric ton next year and aluminum $1,835.
By Allen Sykora of Kitco News firstname.lastname@example.org