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