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TDS Sees Gold, Silver Starting Softer In 2015 But Then Turning Higher

By Kitco News
Tuesday December 9, 2014 7:46 AM

(Kitco News) - TD Securities looks for gold and silver to first weaken in 2015 due anticipation of higher real yields, a stronger U.S. dollar and expectations for Federal Reserve tightening, only to rebound again when policy-makers hike rates only slightly.

The firm looks for an average first-quarter gold price of $1,175 an ounce next year, which would be below current prices. However, it then looks for higher averages of $1,200 in the second quarter, $1,250 in the third and $1,275 in the fourth. TDS’ full-year 2015 forecast is $1,225 an ounce.

The firm lists a similar picture for silver with the lowest forecast price in the first quarter – an average of $15.50 an ounce. The firm then looks for $17.50, $18.75 and $19.50 for the next three quarters, with a full-year average of $17.81.

TDS has a bullish outlook for platinum group metals.

Commodities generally are seen remaining under pressure to start 2015.

“While we see the precious metals market strengthen(ing) materially in the latter half of 2015, it is still very likely that there will be more weakness through much of the early part of 2015,” TDS said.

Market participants believe the U.S. economy is recovering and the U.S. central bank will start tightening monetary policy next year. This in turn implies more dollar strength, especially if the European Central Bank undertakes some form of unexpectedly aggressive asset purchases. All of this has the potential to push gold lower, TDS said.

Further, slow growth in China and Europe, with sharply lower oil prices, will push down inflation. “Less inflation tends to lift real rates and reduce demand from investors, who buy gold and silver as a hedge,” TDS said.

“The lack of physical demand from Asia suggests that there would be little to stop any spec-initiated selloff,” TDS said. “During the sharp sell-off in H1-2013, aggressive Asian buying stopped the carnage. This would not be the case today.”

However, once the market prices in the first few monetary tightening steps by the Federal Open Market Committee and gold and silver hit cyclical lows, TDS looks for them to reverse higher.

“The reasoning is that the FOMC is unlikely to get too restrictive given the headwinds from external sources, implying real rates should not rise very much,” TDS said. “If U.S. inflation moves higher, which it should under our U.S./global growth scenario, along with a reduction in the U.S. output gap in H1-2015, the cost of carry for gold and silver may not rise as much as many real money traders and specs think.”

TDS later added: “Indeed, higher inflation would bring real interest rates lower given a modest tightening cycle, which would be a de facto monetary easing. The fear that the Fed and other central banks may be willing to fall behind the inflation curve will likely get investors interested in the precious metals space again.”

When the precious metals are under pressure, silver is likely to beat up more than gold, TDS suggested. However, whenever they recover, silver is then likely to fare better. Silver has a reputation for falling more in down markets but rising more in bull markets, with more volatility but less liquidity.

“Plus silver should receive an industrial demand boost from the improving global economy as we get deeper into 2015,” TDS said.

Meanwhile, TDS favors bullish positioning in platinum. The firm looks for both palladium and platinum to “see better days next year,” as both are likely to be in supply deficits for several years. However, platinum will outperform after it lagged in 2014, TDS said.

TDS listed an average 2015 platinum forecast of $1,513 an ounce. The first quarter is expected to be the weakest with an average of $1,300, and the fourth quarter the strongest at $1,700.

Palladium is seen averaging $856 next year. The first-quarter average is forecast to be $825 and the third and fourth quarters $875.

TDS forecast a supply deficit of 722,000 ounces for platinum next year after a 1.12 million deficit this year. Palladium is seen in a 2015 deficit of 1.125 million ounces after 1.583 million in 2014.

Related Stories:

West Texas Intermediate crude oil is expected to remain on the defensive with a full-year average price of $70 a barrel, but with the first quarter the worst at $65. Weakness is expected due to increased supply from U.S. and other non-conventional production and OPEC’s refusal to cut output.

Copper is seen averaging $2.98 per pound for the year, with the second quarter the best at $3.04 and the third the worst at $2.94. TDS listed a projected global surplus of 183,000 metric tons.

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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