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BMO Sees Gold Averaging $1,501/Oz, Profitable Producers In 2020

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Editor's Note: 2020 is expected to be another year of significant uncertainty and turmoil. But the question is what asset will emerge the victor when the dust settles from the global trade war, Brexit, recession threats, negative bond yields. It’s a showdown of global proportions, so don’t miss all our exclusive coverage on how these factors could impact your 2020 investment decisions.

(Kitco News) - BMO Capital Markets looks for gold to benefit from loose central-bank monetary policy in 2020, allowing the metal to post an average price of $1,501 an ounce.

The “vast majority” of gold producers should be profitable at these prices, BMO added in an outlook report released Wednesday. Analysts called for silver to average $18.20 an ounce.

Shortly before 8:30 a.m. EST, spot gold was at $1,472.40 and silver was at $16.90.

“With inflation stubbornly low and surprisingly well correlated across global economies, monetary policy looks set to remain loose through 2020 ¾ indeed the bias of risk is for further cuts,” BMO said.

“This will keep macro asset allocation supporting gold and precious-metals markets. However, in our view, 2020 is more likely to be a year of consolidation than aggressive upside for gold and silver prices ¾ while many of the tailwinds are still blowing, they are not doing so with the same strength that drove prices higher through Q3.”

Analysts said they envision a “nascent industrial recovery” in the year ahead, but say this on its own should not be enough to derail gold’s rally.

“In our view, the gold price moves in ranges, and while global monetary policy is trending toward loosening, a range centered around $1,500/oz looks well based,” BMO said. “For gold to push out the top of its current range would likely require significant portfolio rotation, most likely at a time of emerging-market panic or equity-market sell-off. For a downside breakout, this would involve a significant risk-on rally for which gold would be the funding source.”

Central banks are likely to support gold not only by keeping interest rates low or even negative, but through continued gold buying “as they seek to dedollarize their own holdings,” BMO said. However, BMO said it does not envision either central-bank or exchange-traded-fund flows being as aggressive as they were in 2019.

“The longer-term outlook for gold depends on whether the current economic situation (low yields and rising global capital availability) is the new normal,” BMO said. “We expect that gold will continue to see a longer-term asset allocation annuity through its use as a portfolio diversifier but that other commodities will start to eat into this share.”

Meanwhile, analysts said silver should benefit from a continued recovery in industrial demand in the coming years.

One thing we expect to help silver demand over the course of 2020 is its use in electromagnetic shielding mesh around base towers as the 5G network build-out continues globally,” BMO said. The metal should also benefit from demand in the solar industry, provided that silver-free technologies don’t become the norm, analysts said.
“From a supply-side point of view, we do see higher output in Mexico and Peru over the coming year, but this has less direct price impact.”

BMO said its preferred equities among the senior gold producers are Barrick Gold Corp., Newmont Goldcorp and Agnico Eagle Mines Ltd. Among the mid-caps, BMO said it is recommending Alamos Gold Inc., B2Gold, and SSR Mining. BMO said its preferred silver company is Pan American Silver Corp.

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 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.