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Outlook 2016

Citi Research Sees Softer Gold In 2016 But Not ‘Outright Price Capitulation’

(Kitco News) - Citi Research looks for gold prices to decline further in 2016 but does not envision an “outright price capitulation,” while platinum group metals are expected to rise from current levels.

In an outlook report released over the weekend, the bank said it sees gold averaging $995 an ounce in 2016, before improving to $1,025 in 2017 and $1,200 in 2018.

Investor flows are likely to be deterred by expectations for a stronger U.S. dollar, with monetary tightening expected in the U.S. but further easing measures expected in Europe and Japan, Citi said.

“Given weak price performance in 2015 and strong USD sentiment, investors may continue to reduce gold exposure and look for returns in equities and bond markets,” Citi said. “However, as has been the case in 2015, we expect continued macro risk concerns, plus a supportive physical market to prevent outright price capitulation next year. We expect prices to average $995/oz in 2016.”

Analysts said they look for Chinese investment demand and central-bank buying to improve slightly next year.

Citi said silver “remains in the shadow of gold,” listing average forecasts of somewhere around $14.20 to $14.30 an ounce for the year ahead.

Platinum is seen averaging $1,000, while palladium is expected to average $655. However, Citi added that platinum’s historical per-ounce premium to gold is unlikely to return in the near term.

“Tightening emissions controls should increase PGM loadings, hence current levels look oversold,” Citi said. Further, cost-cutting efforts by producers and the lack of capital expenditures are likely to curb mine supply.
Citi analysts said they believe the global platinum market moved into a “moderate surplus” this year with a net outflow from investment products. However, a slight decline in South African mine supply by 2017 is expected to move the market back into a deficit, they said.
“Auto-catalyst penetration in diesel cars is likely to remain healthy into next year despite the initial knee-jerk ‘death of diesel’ reaction sparked by the VW (Volkswagen) emissions-testing breach,” Citi said. “Indeed car sales in many European nations continue to gain pace.”

Diesel-powered vehicles rely on platinum for catalysts, while gasoline-powered cars rely on palladium.

“Gasoline cars in the U.S. and China may see auto-catalyst recycle rates continue to increase, potentially capping supportive demand expectations,” Citi said. “Nonetheless, recent Chinese auto
sales were strong. However this is likely a result of stimulus measures that brought forward future sales.
Our fundamental view for palladium continues to remain more constructive than for platinum.”

By Allen Sykora of Kitco News; asykora@kitco.com

 

 

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