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May was 'as good as it gets' for metals this year, including gold price, silver price - Capital Economics

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(Kitco News) - Most industrial and precious metals will end the year lower than the current levels, said Capital Economics in a new report.

May was a stellar month for metals across the board with gold being one of the best performers. The yellow metal crossed the $1,900 an ounce level as it surged nearly 8% on the month.

However, this bullish trend is very unlikely to last, said the Capital Economics commodities team.

The report cited slower growth in China and the threat of rising yields as some of the reasons behind their bearish outlook.

"We suspect that this may be as good as it gets. After all, if we're right in expecting economic growth in China to slow in the second half of this year, the prices of most industrial metals are likely to end the year lower," commodities economists said on Thursday. "Meanwhile, the recent rise in the gold price has been far larger than is implied by the fall in real yields, and we think that the gold price will come under renewed downward pressure in the months ahead as real yields start to creep higher."

Both industrial metals and precious metals will retreat significantly by year-end, Capital Economics specified.

"Despite the further gains in industrial metals prices, investors in the futures markets have continued to reduce their net-long position. And while China's imports of refined metal have remained reasonably strong, the end of the 'restocking season' is likely to weigh on imports going forward," the report said.

From the base metals, Capital Economics projects for copper to end the year at around $8,000 per metric ton, aluminum at $2,000, nickel at $15,000, and tin at $24,000.

"Strong demand from the electronics sector and a sharp decline in exchange stocks boosted the price of tin in May. However, demand for electronics goods is likely to ease as lockdowns are steadily lifted, which is one reason why we expect the price of tin to fall by year-end," the report said.

In the precious metals sector, gold will wrap up the year at $1,600 an ounce, silver at $21.50 an ounce, platinum at $1,000, and palladium at $3,000, according to the report. Capital Economics even estimates for gold to fall below $1,600 an ounce in 2022.

"In a reversal of the trend seen for much of 2021, the prices of gold and silver outperformed those of the platinum group metals (PGMs) in May. Despite broadly stable U.S. real yields, the gold price rose due to a weaker dollar, some safe-haven investment flows, and strong physical demand from Asia," the report noted. "In any case, the strong physical demand in Asia is unlikely to offset the downward pressure on gold from the higher U.S. real yields we expect."

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