(Kitco News) - A stronger U.S. dollar is expected to pressure gold and silver prices as the U.S. economy is expected to continue to grow, said a Canadian bank on Monday.
BMO Research also reduced some base metals price forecasts, saying “while emerging markets’ demand is expected to improve by the second half of 2013, price gains will be tempered by the anticipation of increased supply near term.”
BMO Research lowered its price forecast estimate for gold for 2013 by 8.4%, to $1,633, and silver by 9%, to $30. For 2014 the bank lowered those estimated price forecasts even further, dropping it by 15% for gold, to $1,700, and 20% for silver, to $32. For 2015, it reduced its price forecast for gold by 6%, to $1,700, and for silver by 14%, to $30.
The bank said it also revised its sector rating for the gold and mining exploration sectors to market perform from outperform.
“The downgrade is due to a revised outlook for gold and silver prices, as well as expectations that sentiment toward the sector will be lackluster over the medium term…. Funds continue to flow out of the precious metal equities sector. In such an environment, BMO Research analysis highlights that stock picking will be key and continues to recommend a ‘flight to quality’ strategy for the mining equities,” they said.
BMO Research said as emerging market economies improve on the back of U.S. economic strength, gold prices should improve slightly. They said investment demand in regards to exchange-traded funds is waning, but they expect jewelry, bar and coin demand to continue to be strong. Additionally, they see central banks as net purchasers of gold overall. Industrial demand is expected to be flat.
For silver, the firm said the metal’s properties as a precious metal will outweigh industrial factors in the near term. Also, the expectation for future oversupply is expected to limit price rises even if industrial demand picks up.
It slightly lowered its platinum estimate to $1,625 for 2013. Its 2014 estimate is $1,650. It increased its palladium estimate to $750 for 2013 and $750 for 2014.
“Whilst the near-term outlook for platinum remains muted, BMO Research maintains a slightly more positive outlook for palladium as its by-product nature makes it difficult to expand production to meet growing demand from the U.S. and Chinese auto markets,” they said.
It also revised down some base metals price estimates, particularly for aluminum, nickel and zinc for 2013 and for aluminum, zinc and lead for 2014. For 2015, it lowered estimates for aluminum and zinc.
It now estimates 2013 aluminum prices at 90 cents a pound, down from 94 cents; nickel prices at $8.09 a pound, down from $8.28; and zinc prices down 1 cent, to 97 cents a pound. For 2014, it forecast aluminum prices down 10 cents, to 90 cents, from previous levels; zinc prices down 20 cents to $1; and lead prices down 15 cents to $1.10. For 2015, it estimates aluminum prices at $1 a pound, down 10 cents from previous forecasts; and zinc at $1.10, down 10 cents.
BMO Research said it “remains positive on copper and iron ore,” saying that both metals “are expected to demonstrate better relative fundamentals near term and stronger average earnings margins for producers in a challenging environment.
Despite their positive view on copper, they reduced their 2013 copper estimate by 10 cents, to $3.57 a pound for 2013, on weaker near-term sentiment. By 2014, the stronger growth in supply will weigh on prices. It estimates copper prices at $3.50 for 2014, falling to $2.75 by 2016. It slightly increased iron ore to $128 a ton for 2013, up $3, with 2014 prices revised down by $5, to $125.
By Debbie Carlson of Kitco News firstname.lastname@example.org