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Barclays Revises Up 2014 Gold Forecast; Sees Gains For PGMs

By Kitco News
Wednesday March 26, 2014 2:25 PM

(Kitco News) - Barclays has revised its 2014 gold forecast higher although analysts say they still look for the metal to fall back some from current levels.

However, the bank expects platinum group metals to rise.

“We have revised our gold price forecast for 2014 up to $1250/oz from $1205/oz, after taking into account gold’s year-to-date performance,” Barclays said in a report Wednesday. “That said, we have not changed our overall view and still believe that its next move will be lower.”

“Palladium has similarly outperformed so far this year, hitting several year highs, due to possible supply concerns. However, we still expect market fundamentals to push palladium even higher by year-end,” the analysts added.

Other average price forecasts for 2014 include silver, $19 an ounce; platinum, $1,539; and palladium, $768. The latter two are seen gaining momentum as the year wears on, with Barclays listing fourth-quarter forecasts of $1,610 for platinum and $810 for palladium.

Barclays said although investor flows have turned positive for the gold market, they cautioned against interpreting this as a sustainable long-term shift in sentiment.

While the metal has gotten a bid in recent weeks from factors such as Ukraine-Russia tensions, eventually macroeconomic factors are likely to determine price direction, Barclays said.

China has become the world’s largest gold-consuming nation. Barclays said it looks for Chinese gold consumption to continue growing, although at a slower year-on-year pace after the price-sensitive buying of 2013.

“Much of the gold imported by China to feed this voracious appetite has come from Western vaults as destocking and outflows from gold ETPs (exchange-traded products),” Barclays said. “Given that Chinese buyers prefer to hold physical gold, the flow of gold from the West to the East will likely remain a theme.”

A key for gold will be whether Indian authorities ease restrictions on gold imports meant to control the current-account deficit.

“We think a decision likely will not be made until after the end of the fiscal year, and perhaps more likely not until after (spring) elections,” Barclays said. “Such a move would provide the next cushion of support for gold prices, in our view.”

In the case of silver, Barclays looks for supply to keep rising in 2014. Much of this is by-product output from mining for other metals, meaning those producers would not necessarily cut silver output even if prices for this metal fell, the bank explained.

Meanwhile, Barclays looks for PGMs to be helped by a strike in South Africa, worries that geopolitical tensions surrounding Russia and Ukraine could disrupt palladium supplies from Russia, plus good demand by exchange-traded products. Barclays looks for a supply deficit in both platinum and palladium this year.

The three large platinum producers in South Africa – Anglo American Platinum, Impala Platinum and Lonmin – collectively have lost more than 400,000 ounces of platinum already due to a strike that began in January, Barclays said. ETP holdings of the metal hit a record high in March.

Meanwhile, two new ETPs for palladium are being launched in South Africa this week and are expected to result in inflows of some 200,000 to 300,000 ounces, Barclays said. The bank also cited good palladium demand from the auto markets in China and the U.S. Both countries have car markets that are primarily gasoline-powered and thus can use less-expensive palladium, whereas diesel-powered cars require a certain amount of platinum.

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In the base-metals arena, Barclays forecast copper to average $7,125 a metric ton in 2014, which would be above current prices.

“We think the extent of the decline in copper prices is overdone since micro trends have likely bottomed, though macro concerns and stock overhang take some of the potential upside off our Q2 price forecast,” Barclays said. “China is now the biggest risk -- in both directions. Our economists believe that the risks of a sharp and sustained drop in growth in years to come are not insignificant, but they also believe that Q1 14 will mark the nadir for Chinese growth this year and forecast a strong sequential pick-up over the next few quarters.

“The government is already employing policy tools such as infrastructure spending, which should be positive for demand. With that, we think risk/reward of buying copper at these lows is attractive.”

Other average 2014 base metals forecasts include aluminum, $1,850 a ton; lead, $2,263; nickel, $15,000; tin, $26,000; and zinc, $2,138.

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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