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Bank Of America Merrill Lynch Hikes 2014 Gold Forecast

By Kitco News
Thursday March 20, 2014 9:57 AM

(Kitco News) - Gold could bottom out this year after a weak 2013, said Bank of America Merrill Lynch as it raised its 2014 outlook in a report released Thursday.

Meanwhile, the bank lowered its outlook for commodities such as copper and iron ore that are heavily imported by China.

Gold posted a “remarkable rebound” during the early part of 2014 after sharp falls last year, helped by slowing economic data in the U.S. and headwinds for emerging-market economies, said BAML.

“We note that the recent rally was largely driven by investors in Europe and the U.S., while physical buyers in large parts of Asia have remained on the sidelines,” BAML said. “Acknowledging also that a few of the recent bullish macro-economic price drivers may normalize, we see a risk that gold may give back some of its recent gains through 2Q14. Yet, at the same token, we continue to believe that gold prices will bottom out in 2014, reflected in an increase of our average price forecast by 13% to $1,300/oz.”

BAML revised up its 2014 silver forecast by 13.2% to $20.80 an ounce. Meanwhile, the bank revised down its forecast for platinum by 8.9% to $1,554 an ounce and palladium by 2.6% to $792.

The bank listed a number of factors that could bring new buyers into the gold market. It looks for demand in emerging-market nations, including China, to continue as people in these countries become more affluent. Also, although inflation remains low in advanced economies, concerns that central banks could be misjudging the slack in the economy should bring buyers into the market, BAML said.

“Having said that, we are concerned that the rally year-to-date has been driven by investors with a shorter-term investment horizon,” said BAML, suggesting there could be a dip in the coming weeks.

Meanwhile, despite lowering its forecasts for the platinum group metals, the bank’s outlook nevertheless is for prices to rise from current levels. In the case of platinum, the metal has been range-bound despite strikes against several major South African producers, likely because mining companies had built up inventories.

“In our view, except for Anglo Platinum, which still holds around
200koz of platinum, these stocks are now depleted, and we note very little
progress in contract negotiations between the unions and the miners,” BAML said. “This increases the likelihood that the current dispute will gradually lead to a tightening in market balances and higher prices, especially if consumers purchase more platinum.”

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In the base-metals arena, the bank said it favors nickel and zinc over copper. Prices for the red metal collapsed in March on worries about the health of the country’s credit markets and an unwinding of financing deals.

“While prices have stabilized for now and strong short-covering rallies are possible near term, we see a risk that copper may not rebound sustainably until 3Q14…,” BAML said. As a result, the bank said it lowered its average 2014 copper price forecast by 2.7% to $6,826 per metric ton, or $3.10 a pound.

“Meanwhile, nickel and zinc markets are rebalancing, suggesting scope
for further prices gains as we move into 2H14,” the bank said.

Other current 2014 forecasts for base metals include aluminum, $1,772 per ton; lead, $2,207; nickel, $16,091; and zinc, $2,120.

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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