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BMO Ups 2018 Average Gold Forecast To $1,327/Oz

Kitco News

(Kitco News) - BMO Capital Markets has revised upward its average gold forecast for 2018 by 4% to $1,327 an ounce, looking for retail investment to pick up on inflation concerns and big investors to want exposure due to geopolitical worries.

As of 9 a.m. EDT Wednesday, spot gold was 2.5 % higher so far in 2018 to $1,334.90 an ounce.

 “The return of geopolitical tension and concerns over the duration of industrial-led global growth have certainly offered some support, even if underlying conviction on owning precious metals as an asset class seems low,” BMO said. “For the coming period, we believe the return of inflationary pressures…will generate increased interest levels.”

The bank said gold has benefitted from what it terms “macro asset allocation,” such as inflows into physically backed exchange-traded funds. However, there has been more muted interest in “micro asset allocation,” which it characterizes as retail buying, which has been hindered by Indian import restrictions and alternative investments in emerging markets.

 “In an inflationary environment, overlaid with rising trade friction, we expect a return of retail buyers where the need to increase allocation to gold as a hedge is rising once more,” BMO said. “In contrast, we may see macro asset allocation wane somewhat, particularly if the U.S. dollar strengthens. With real U.S. rates now back in positive territory, this is the main factor in our steadily declining gold price outlook in future years.

BMO sees gold averaging $1,275 in 2019 and $1,250 in 2020.

“However, in the near term, the rising geopolitical risk is set to keep macro asset allocators interested in gold,” the bank said. “This could create a sweet spot into Q2 where macro and micro are for once aligned on the positive side.”

BMO also listed its “preferred” equities among precious-metals producers: “Newmont Mining and Kinross Gold for attractive relative value; Endeavour Mining, Fortuna Silver and SEMAFO for delivery of production growth; Argonaut Gold, Kirkland Lake Gold, Premier Gold and IAMGOLD due to significant upcoming catalysts; and Continental Gold and Pretium Resources among developers.”

Meanwhile, BMO sees silver averaging $17.30 an ounce this year and $17.60 next year. As of 9 a.m. EDT, spot silver was at $16.396 an ounce.

Analysts reported that consumption of silver by the semiconductor industry is benefitting from “an extremely strong demand cycle” and ETF holdings are up 2% so far this year. However, this has been offset by a “collapse” in silver-coin sales in every major region except Japan, although BMO also expects a “moderate” recovery in this demand.

“Longer term, we do feel silver’s industrial uses will produce some outperformance, even if it has missed out thus far in the current cycle,” BMO said. In particular, photovoltaic demand may pick up for solar panels, with the move toward thrifting “now in the past,” analysts added.

BMO projected platinum will average $990 this year and $1,044 next year. The early-morning price was $938.20 an ounce.

BMO looks for palladium, which soared in 2017, to average $962 this year but only $915 in the second half. The metal was last trading at $975.45, giving it a premium of $37.24 over sister metal platinum. Historically, platinum had the upper hand until last autumn.

“Headwinds [for palladium] in the form of abundant above-ground inventory present a cap to prices while an uptick in scrap recovery is expected on the back of recent price strength,” BMO said. “In spite of this, 2018 will still mark a decent deficit, but it may perhaps be less acute than that seen last year.

“Mine supply is forecast to return to growth this year with a 2.7% increase and with global auto sales growth expected to slow, concerns over substitution back towards platinum are increasing. As such, we are not believers that the palladium premium will hold.”

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