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Standard Chartered Lowers 2014 Average Gold Price Forecast 8% To $1,225/Oz

By Kitco News
Tuesday March 25, 2014 10:53 AM

(Kitco News) - Standard Chartered lowered its 2014 average price for spot gold by 8% to $1,225 an ounce, saying the recent gains in the yellow metal are based on U.S. growth concerns and safe-haven buying are overdone.
The bank’s preferred precious metal is platinum, based on strong industrial demand from the auto sector and supply-side risks in South Africa. It also said palladium should find support from another year of supply deficit and solid investor demand.

In addition to lowering its 2014 gold price forecast, the bank cut its 2014 spot silver price forecast by 5% to $19.40. It raised its spot palladium price forecast to $800, a 3% rise, and lifted its spot platinum forecast to $1,575, a 10% hike.

Standard Chartered said physical gold demand should come in when prices dip, but gold will be hampered by the macroeconomic backdrop. For silver, the market is in a continued surplus and a weaker gold market will likely weigh on prices.

Overall it said the rally in commodities in general is based on five main fears, including worries the U.S. economic recovery is faltering and the Federal Reserve may delay its first rate hike, China’s economic growth is expected to significantly disappoint relative to expectations, Chinese investors use of inventory-backed financing will destabilize the commodity markets, heightened geopolitical tensions may affect trade and commodity flows and finally that the supply sides of commodity markets are out of balance, particularly in base metals and energy.

The bank said it disagreed with those concerns, saying it doesn’t see the Fed changing course and more likely the Fed may push up the likelihood of the first rate hike. Regarding China, it said the Asian nation’s growth will likely normalize to something more sustainable and believes inventories used as collateral will be reabsorbed into the market gradually. While there is an increase in the importance of geopolitics, it’s too early to project significant constriction in commodity flows, the bank said. Finally, Standard Chartered said the supply imbalances are more cyclical than structural.

In other commodity markets, the bank said it is “positive” on copper at current levels and expects prices to rise in the second half of the year. “The surplus is manageable and not structural, and a disorderly inventory unwinding is unlikely. We do expect China’s economy to undershoot expectations,” it said.

The firm is also “positive” on crude oil, particularly for the second half of 2014, in addition to sugar and soybeans because of dry conditions in Brazil. These two agricultural markets “would have the most upside price risk in (the second half of 2014) were an El Niño event to cause wetter-than-usual conditions. Our least preferred exposures are cotton and Arabica coffee. In both cases, our view is that the fundamental balances do not justify extensions of the recent sharp increases, and we look to sell into these rallies,” the bank said.

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By Debbie Carlson of Kitco News; dcarlson@kitco.com
Follow me on Twitter @dcarlsonkitco



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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