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Gold price should hold steady through 2023; silver has more potential - BMO

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(Kitco News) - The Federal Reserve’s new inflation target of an average of 2% has created even more long-term potential for the precious metals price and mining sector, according to one Canadian bank that is now raising its long-term forecast for gold and silver.

In a report published last week, analysts at Bank of Montreal announced that they were raising their long-termgold and silver price forecasts. The bank now sees gold prices averaging above $1,800 an ounce through 2023.

For this year, the bank sees gold prices averaging the fourth quarter around $1,920 an ounce, up 4% from the previous forecast.

The bank is even more bullish on silver as it now sees the prices for the precious metal averaging above $27.60 an ounce through 2023, up nearly 50% from their previous estimate.

The analyst are more bullish on silver as the physical market pushes into deficit this year.

Looking at silver prices, the bank sees prices averaging the final quarter of the year around $27.50 an ounce, up 47% from the previous forecast.

The bank added that although it has increased its medium-term outlook, its long-term outlook remains unchanged. Gold prices are expected to average $1,400 an ounce and silver is expected to average around $18.25 an ounce.

“As we factor in the new Federal Reserve policy of average inflation targeting, as announced at the recent Virtual Jackson Hole Economic Policy Symposium, the net result is likely to be low-for-even-longer interest rates,” the analysts said. “With this, we see the precious positive cycle of macroeconomic policy being prolonged, and have thus increased our short- to medium-termgold and silver price forecasts.”

Although BMO analysts are bullish gold and silver, they don’t see runaway prices above $2,000 an ounce anytime soon. They added that the best way to play the precious metals market as prices hold around current levels is through mining equities.

They noted that because of higher gold and silver prices, they have increased their equity target prices by an average of 9%.

“In our view, the key story in gold is the rise in industry profitability,” the analysts said.

Looking at gold prices, the bank said that the market should remain in its current range as it doesn’t expect to see real bond yields pushing much further into negative territory, nor pushing into positive territory anytime soon.

“Unless we see further currency debasement (still a possibility rather than a probability) or real yields drop even further, the story from current levels is not about whether the gold price rises a further 20%. Rather, it is about the duration of gold prices in excess of our long-run equilibrium,” the analysts said in the report. “Thus, the key factor to watch over the coming years is what the gold mining and refining industry will do with the strong free cash flow set to be generated.”

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