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Capital Economics: Silver To Outperform Gold As Prospects Improve For Both

By Kitco News
Friday October 17, 2014 12:53 PM

(Kitco News) -Capital Economics sees gold prices rallying to $1,300 an ounce next year and silver doing even better.

Gold could test the $1,200 level again whenever fears about the global economy fade and the focus returns to prospects for tighter U.S. monetary policy, the firm said in an outlook Friday. The price has dipped below this three times since June 2013, holding at roughly the $1,180 area.

However, Capital Economics said, the area around $1,200 is thought to be the so-called marginal cost of production, meaning any fall below this should mean reductions in output that helps establish a floor for prices.

“Looking ahead, any tightening by the Fed would, in isolation, be negative for the price of gold,” Capital Economics said. “However, the dollar has already strengthened a long way, and real yields are likely to remain
historically low. Any reduction in support for gold prices from U.S. monetary policy could therefore easily be offset by new positives, including policy easing elsewhere, higher volatility in other asset markets and strong physical demand from emerging economies.

“The upshot is that we continue to expect the price of gold to rally to $1,300 per ounce next year, and to $1,400 in 2016. In this environment, silver should do better still.”

Silver is more dependent than gold on industrial demand and has been dragged down for many of the same reasons as those which have held back the prices of industrial base metals, the firm said.

“But the flip side is that silver now has more room to recover,” Capital Economics said. “We expect the price of silver, currently just over $17 per ounce, to rise to $20 by end 2015 and $23 by end 2016, trimming the ratio of gold to silver prices from 72 times to a more normal 60.”

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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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