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Citi: 90th Percentile Of Gold Cash Cost Curve At $1,010; Gold, Copper Forecasts Cut

By Kitco News
Monday July 15, 2013 9:45 PM

(Kitco News) - The 90th percentile of the cash cost curve for the gold-mining industry is $1,010 an ounce, likely to be an important support level should prices fall this far, Citi Research said Monday.

Meanwhile, the bank’s commodities research team downgraded its outlooks for gold, copper and aluminum.

Cit’s gold forecast was trimmed to $1,358 an ounce in 2013 from $1,555/oz previously. It also trimmed the 2014 forecast to $1,145 from $1,435, and the 2015 outlook to $1,250 from $1,340.

“Assuming supply-and-demand fundamentals matter for gold, then over the past 12 years, the 90th percentile of the cash cost curve appeared to serve as a lower bound for the gold price,” Citi said. “We recognize there is a self-fulfilling effect of higher prices pushing up the cost curve as miners chase lower grades, but this is mitigated by the fact that mine supply grew less
than 1% annually over the past decade.

“Spot gold price breached the 99th percentile when it fell below $1,400/oz, but we estimate the 90th percentile at $1,010/oz, an important support level from a cash cost standpoint.”

Global mine supply rose modestly to 2,857 metric tons in 2012 from 2,618 back in 2002, for annual mine supply growth of 0.9%, Citi said.

Meanwhile, Citi reported declining exchange-traded fund investment and reduced net length for futures speculators. ETF gold holdings hit a record high of 2,632 tons at the end of 2012 but have declined 25% for the year to date and currently stand at a fresh low for the year at 1,986 tons, the bank said.

“Similarly, speculator interest as measured by Comex net-long positions, is sitting near recent lows and are down 82% since the 52-week high reached Oct. 5, 2012,” Citi said.

Citi Cuts Copper, Aluminum Forecasts

Citi trimmed its copper forecast to $3.27 a pound from $3.41 for 2013, and also cut the 2014 outlook to $2.95 from $3.07. It maintained 2014 guidance at $3.08.

“With Oyu Tolgoi (Mongolia) initiating concentrate shipments this past week
and FCX (Freeport McMoRan Copper & Gold) restarting its underground Grasberg ops following the tragic May accident, we believe improving supply and a slowing China PMI (purchasing managers index) will more than offset near-term copper restocking in China, driving copper below $3/lb,” Citi said. “The global copper surplus should persist through 2016.”

The bank forecast a global copper market surplus of 294,000 metric tons in 2013, then 491,000 in 2014 and 337,000 in 2015.

One positive for copper has been the recent strength of Chinese copper imports, which rose to around 380,000 metric tons in June from some 296,000 in April, the bank said. Rises in China’s copper imports historically have coincided with improvements in global copper pricing, Citi said. “That said, we believe supply growth will be more than sufficient to satisfy the apparent demand growth,” the bank said.

Meanwhile, for aluminum, Citi trimmed the 2013 forecast to 85 cents a pound from 90 cents previously. The 2014 outlook was cut to 83 cents from 88 cents and the 2015 outlook was left at 88 cents.

Citi’s commodity team projected a global aluminum surplus of 773,000 tons in 2013, 612,000 in 2014 and 580,000 in 2015.

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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