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BMO trims full-year price PGM price forecasts, maintains gold, silver outlooks

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(Kitco News) - BMO Capital Markets lowered its forecasts for average prices of platinum group metals during 2020, although the bank looks for a rebound from current prices into year-end.

However, analysts did not change their 2020 outlooks for gold and silver, noting that they did so already at the end of May.

BMO reduced its 2020 average platinum price forecast to $875 an ounce from $976 previously, although the bank looks for prices to climb from the mid-morning level of $788 to a fourth-quarter average of $940. The 2021 outlook was left at $951 an ounce.

BMO called for palladium to average $2,224 an ounce in 2020 compared to $2,338 previously. However, the average for the fourth quarter was revised up by 7% to $2,400 (spot metal was at $1,788 as of mid-morning). The 2021 outlook rose 1% to $2,188.

Perhaps no commodity is facing more dramatic supply-demand revisions in 2020 than platinum, BMO said. There have been impacts on both South African production and global auto and jewelry demand due to the COVID-19 pandemic. In fact, supply is expected to fall by around 20% this year, with mine output at the lowest level since the last century, BMO said. Still, with challenges facing the jewelry and auto sectors amid weaker economies, above-ground inventory is expected to grow to around 10 million ounces, keeping prices “subdued,” BMO said.

“We have lowered our 2020 forecast 10.4% lower, while keeping 2021 the same,” BMO said.

BMO lowered its 2020 palladium price forecast by a smaller amount, just 4.9%. However, the bank upped its longer-term forecasts.

The market is expected to remain in a supply/demand deficit this year, but the smallest one since 2011, BMO said. Analysts said prices remain elevated despite a weak auto market, no doubt due to low inventory after years of supply deficits. They describe palladium as a market “highly leveraged” to any industrial recovery, with substitution into cheaper metals not yet an imminent concern.

“We expect palladium to outperform during H2 as the ex-China recovery kicks in, with prices pushing back towards Q1 highs during the fourth quarter,” BMO said.

BMO continues to look for gold to average $1,732 an ounce in 2020, including $1,850 in the fourth quarter. The metal is seen averaging $1,769 in 2021.Silver is expected to average $17.60 an ounce this year, including $18.80 in the fourth quarter, then average $18.50 for 2021.

As of mid-morning, spot gold was trading at $1,758.60, while silver was at $17.54.

Analysts said “what is bad for the world is good for gold,” so the massive monetary accommodation and fiscal stimulus to counter coronavirus-induced economic weakness should benefit the precious metal. Year-to-date inflows of gold into exchange-traded funds are on pace for a record year, offsetting a disappointing year for the jewelry sector.

“We see gold potentially testing previous USD [U.S. dollar] highs over the coming 12 months, which is a very strong environment for producers,” BMO said.

Silver typically moves with gold, BMO said, but should benefit as governments try to prop up the economy. Any acceleration in solar-energy infrastructure should also benefit silver.

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