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Citi Research Trims Forecasts For Most Precious Metals

By Kitco News
Thursday September 25, 2014 9:55 AM

(Kitco News) - Citi Research has trimmed its price forecasts for most precious metals, describing itself as most upbeat on palladium. Gold is expected to be under pressure in the fourth quarter, but by 2016, Citi sees the average price rising again.

“We downgrade our near-to medium-term gold price assumptions, marking-to-market the current spot environment,” Citi said in one of several research reports on the metals released Thursday.

The 2014 average forecast was revised to $1,275 an ounce from $1,300 previously, while the 2015 forecast was trimmed to $1,225 from $1,365. The 2016 forecast is now listed at $1,300, compared to $1,380 previously.

The bank looks for gold to come under pressure in the final three months of 2014 on continued U.S. dollar strength ahead of expected rate rises in 2015.

“Gold prices have now been in a clear downtrend since the second week of August,” Citi said. “The growing expectation of 2015 U.S. interest rate increases has reduced investor interest in holding gold, while its risk-related source of support has been diminished as the vestiges of geopolitical support that had pushed prices to $1,345/oz. in mid-July have been slowly pared back. Ukraine and Russia agreed to an outline peace deal on Sept. 3rd, while a ratcheting up of the U.S./European air campaign against Islamic State in Iraq and now Syria appears to have contained the regional threat for the time being.”

A negative rolling one-year correlation between gold prices and the U.S. dollar has re-emerged since the second quarter, the bank said. Global holdings of gold by exchange-traded funds of 1,695 metric tons have fallen to the lowest level since the fourth quarter of 2009, nevertheless the year-to-date outflow of 68 tons so far “has been modest” compared to the 2013 pullback of 869 tons, Citi said.

Citi trimmed its 2014 silver forecast to $19.60 from $20.30 previously and cut its 2015 forecast to $18.70 from $21.20. Like gold, the bank looks for silver to rise again in 2016, listing a forecast of $20, although this is down from its prior outlook of $22.

Meanwhile, Citi said a bullish thesis is still intact for palladium, calling for an annual supply deficit of 1.2 million to 2.95 million ounces likely from 2014 onward. Along with supply disruptions in South Africa, the bank cited continued growth for demand due to rising light-vehicle production in gasoline-powered markets, especially the U.S. and China.

“The sheer size of these two markets combined -- 40% of global vehicle production -- implies
significant potential uplift in demand for palladium, even in a muted growth environment,” Citi said.

The bank revised its 2014 palladium price forecast to $824 an ounce from $835 previously. It left the forecasts alone for the two years - $925 in 2015 and $935 in 2016.

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Citi described itself as neutral and still “cautious” on platinum, preferring palladium in the near to medium term. The 2014 platinum forecast was trimmed to $1,422 from 1,475, while the 2015 outlook was trimmed to $1,500 from $1,600. The 2016 outlook is now listed at $1,675, compared to $1,710 previously.

The bank said its base-case scenario is for a platinum supply deficit of 1,480,000 ounces in 2014 due to first-half supply disruptions in South Africa coupled with slightly improved industrial demand and continued net inflows into ETFs.

“We caution, however, that this deficit may continue to be serviced by the drawdown of above-ground stock,” Citi said. “Furthermore, we expect price-elastic jewelry demand from China, price-responsive auto-catalyst recycling, and overcapacity in the SA (South African) mining system to serve as additional caps to platinum’s upside.”

In the base metals complex, Citi revised its 2014 copper forecast to $6,955 a metric ton (6,940 previously). The outlook for 2015 is $7,185 ($7,240 previously), while the 2016 forecast was left at $7,800.

For aluminum, Citi sees $1,885 per ton in 2014 ($1,840 previously). Future forecasts include $1,995 for 2015 (1,935 previously) and $2,100 for 2016 ($2,000).

By Allen Sykora of Kitco News; asykora@kitco.com



Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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