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BMO Sees Gold, Silver, Platinum Prices Underperforming In 2015

By Kitco News
Wednesday October 8, 2014 9:04 AM

(Kitco News) - Gold, silver and platinum prices are expected to underperform other commodity markets in 2015 on the back of a stronger U.S. dollar, with nickel and aluminum likely finding support on improving fundamentals, said a Canadian bank late Tuesday.

In a research note regarding 2015 forecasts, BMO Capital Markets Research said it is also “positive” on the outlook for palladium prices from a longer-term perspective, but said “the potential release of supply from Russia is a near-term overhang.”

BMO lowered its average 2015 gold forecast to $1,190 an ounce, down from $1,275. It reduced its silver forecast to $17.50 from $20.25 and its platinum forecast to $1,413 from $1,500. BMO raised its palladium outlook to $860 from $853.

“Gold price shocks tend to occur when inflation-adjusted Treasury yields move in and out of negative territory. The good news, then, is that real rates are already positive, thus based on this relationship the gold price may not see another significant move down,” they said.

For 2015 average base metals prices, BMO left its copper forecast of $3.05 a pound unchanged. It also maintained its nickel forecast at $11.50 and lead at 98 cents. BMO raised its aluminum forecast to 94 cents from 85 cents and lifted its zinc forecast to $1.02 from 99 cents.

The bank said it lowered its gold forecast to reflect the recent price weakness and reduced their silver outlook to be in line with their gold price forecast. They don’t expect any upside for the yellow metal until at least the second half of 2016, based on U.S. dollar forecasts.

Platinum’s prices were cut on expectations of a weaker South African rand, while the palladium outlook was increased to reflect the ongoing supply deficit, and on the idea that the platinum/palladium ratio will continue to decline.

BMO said it raised its aluminum forecast on the idea of improved fundamentals, including the increased likelihood that manufacturers will keep production offline for longer. Bullish momentum and recent price performance caused BMO to raise its zinc forecasts, with a deficit supply market expected in 2018.

Regarding the gold miner cost curve, BMO said with gold prices at $1,200, nearly 40% of gold production is underwater on an all-in cost basis.

“Further, given BMO Research covers some of the larger and better-cost operators, on a global basis it is possible well over half of gold production is unprofitable at current gold prices,” they said.

The bank added that the gold cost curve doesn’t necessarily offer a price support, the way it does for industrial metals. “It does, however, provide an indication of the margin challenges facing the industry,” they said.

Gold-mine supply is forecast to rise through 2018, despite lower prices, with gold miners preferring to cut costs and revise mine plans versus curtailing operations, they said.

The bank also dismissed the idea that consumer demand drives gold prices.

“Consumer demand for gold, particularly the ‘shift from west to east’ makes great headlines, but does not impact the gold price, in BMO Research’s view. Since 2000, BMO notes that gold prices increased from US$250/oz to US$1,900/oz while consumer demand has also been wide-ranging and not at all indicative of driving prices either way,” 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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