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Gold Has Most Challenged Fundamentals In Precious Metals Sector – BoAML

By Kitco News
Tuesday October 7, 2014 10:30 AM

(Kitco News) - Of all the precious metals, gold has “the most challenged fundamentals,” said analysts at Bank of America Merrill Lynch on Tuesday, as rising interest rates, stronger equities and the rising U.S. dollar all weigh on the yellow metal.

Adding to gold’s weakness is the reduced Chinese purchases year-over-year, they said. The combination all of these forces suggests that “prices may touch $1,100/oz at some stage next year,” the analysts said in a research note.

While all of these factors contribute to weaker prices, gold has some supportive supply and demand aspects which could give the metal some support around $1,200, the bank said.

“Looking forward, we note that global growth momentum has been slowing, which should prevent a complete collapse in gold prices. Also, while the U.S. economy is normalizing, growth is still not strong enough to reflate the economy and apprehension among gold market participants over a low growth/low rate environment may ultimately support prices,” they said.

Silver has a weaker fundamental outlook than gold as industrial usage is falling, they said. BofAML analysts said they are also watching exchange-traded fund outflows.

“Accelerated outflows would exacerbate the recent correction, although this is not our base case; an increase in hedging from miners could also pose further downside risk to prices,” they said. On the other hand, retail investors increased their coin purchases in October, “an early warning sign that silver may not be a one-way, bearish trade for all market participants,” they said.

Regarding platinum, the analysts said platinum’s fortunes are tied to Europe, as the region’s car manufacturers are heavy users for the metal. Prices are down because investors sold positions on exchanges like TOCOM, they said. “From a structural perspective, platinum fundamentals are strong and we see more upside once Europe stabilizes in 2015,” they said.

Palladium’s fundamentals remain sound, and it has been in supply deficit for years. Yet the analysts said the loss of global growth momentum is hitting cyclical usage. “A reacceleration in demand growth is unlikely until 2015, so prices should remain within similar ranges seen in recent months,” they 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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