SocGen 'Moderately Bearish' On Gold Prices, Prefers Palladium
In a report released Tuesday, analysts said they look for gold to be at $1,275 in six months. As of 9 a.m. EDT Wednesday, spot gold was 2.5% higher so far in 2018 to $1,334.90 an ounce.
Rising yields will be a headwind for gold, SocGen said.
"That being said, we think U.S. rate hikes are already priced in for 2018, and ETF [exchange-traded-fund] holdings have been very stable in recent history," the bank said. "On the physical market, we forecast a 2% decrease in new mine supply for 2017, and see the trend extending into 2018 and 2019.
"However, falling demand in the form of lower jewelry and coin demand is likely to more than offset this decrease. Still, investor flows are, and should continue to be, the most important price driver."
Meanwhile, analysts said they are "neutral" on silver, suggesting current forward prices are "fair valuations" on a six-month basis. Spot metal was at $16.396 an ounce as of 9 a.m. EDT.
"Although supply is contracting and demand is likely to grow at a moderate pace in both 2018 and 2019, the physical market should still record a small surplus," SocGen said. "More importantly, ETF flows have thus far remained stable. While rising interest rates should prove a headwind, we believe this is already priced in."
Palladium is projected by SocGen to be at $1,075 in six months. Spot metal was at $975.45 early in the New York morning.
"Palladium is our preferred precious metal, and we see the current price dip as a buying opportunity," SocGen said. "Given that palladium is widely regarded as the most ‘industrial’ metal of the precious-metal complex, and thereby more closely linked to the business cycle, it is not surprising it fell along with equities. Nevertheless, tight physical availability for immediate delivery, backwardated short-dated swap rates and a bullish chart picture are key bullish factors. Given that supply is constrained and unlikely to expand, we see the market deficit deepening this year and in 2019."
Analysts projected the 2018 supply deficit in palladium at 1.6 million ounces.
The French bank said it sees platinum at $1,025 in six months, with an expected 255,000-ounce deficit for 2018 supporting current prices. Spot platinum was at $938.20 in early New York trading."Jewelry demand also bottomed out in 2017, and tightening emissions regulations in the U.S. and China should further sustain demand," Societe Generale said. "On the other hand, rising interest rates in the U.S., easing geopolitical tensions and concerns about European diesel demand should cap the upside. "