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CIBC trims gold price forecast but remains bullish with $2,100 average

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(Kitco News) - One Canadian bank is trimming its gold forecast for 2021 as the precious metal struggles to find consistent momentum amid growing optimism that the global economy will see stronger-than-expected growth this year.

In a report published Friday, commodity analysts at CIBC said that they expect gold prices to average the year around $2,100 an ounce, down from the previous forecast of $2,300 an ounce.

The bank is also trimming its silver forecast for the year. The analysts said they see silver prices averaging the year around $29, down from the previous forecast of $32 an ounce.

Although the analysts are adjusting their 2021 forecast, they remain bullish on precious metals. They noted that their short-term outlook is based on growing expectations that the global economy will see a faster economic recovery as vaccinations for the COVID-19 pandemic pick up momentum.

The analysts said that they are not adjusting their long-term forecasts through 2022. The analysts added that they see gold prices pushing higher in the second half of the year and eventually peaking in the mid-2022.

"Over the past few months [gold] appears to have decoupled from its long-term relationship with real rates, largely due to a risk-on trade over the past couple of months, the result of early news of two vaccines with purportedly high efficacy rates. We would argue that this decoupling should be short-lived," the analysts said.

The analysts said that rising inflation remains the dominant bullish factor for precious metals.

"The U.S. Federal Reserve has already stated that it is comfortable with the inflation rate drifting higher, and likely would not be quick to react if it moves above its targeted 2% for a short period of time. As well, rate hikes are clearly off the table for the next few years, and that appears to be the case in most major economies through 2023," the analysts said.

"We already know that global GDP is expected to increase over 2021 and 2022, and money is still being pumped into the system. As such, the question isn't whether inflation will move higher, rather will the central banks be effective in controlling the steepness of its rise without risking pushing economies into another recession," they added.

Although the bank has cut its gold and silver price forecasts for the year, the analysts said that they still continue to see strong value in the mining sector.

"We have incorporated our lower, but still bullish outlook for gold and silver and have revised our ratings and price targets lower but continue to expect attractive returns and a robust [free cash flow] outlook for the sector," the analysts said.

As the mining sector heads into the fourth-quarter earnings season, CIBC said that its top equity plays are Agnico Eagle, Barrick Gold, Lundin Gold, Newmont Corporation, Pan American Silver, SSR Mining and Wheaton Precious Metals.

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