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BMO lowering gold price forecast in 2022/23 as interest rate hikes come into view

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(Kitco News) - The precious metal market is expected to weather 2021 relatively well, but tighter interest rates starting as early as next year could prove to be too much for gold and silver, according to analysts at BMO Capital Markets.

In their updated precious metals forecast, the analysts left their 2021 gold and silver outlooked unchanged but reduced their outlook for 2022 and 2023. The Canadian Bank sees gold prices averaging this year around $1,815 an ounce, relatively unchanged from their previous forecast.

"Compared to other commodities, 2021 hasnt been a great year for gold, with current prices down over those at end-2020 and ETFs seeing outflows. And yet, things are well on course for yet another annual average record in terms of nominal price," the analysts said in the report.

"Although precious metals already have one eye on a potential Federal Reserve tapering cycle, over the next few months we expect relatively sticky demand support for gold and silver from both central banks and ETF, particularly if wider market volatility increases," the analysts added. "In a world where the global economy is clearly in recovery mode, attention is naturally shifting to the direction of travel in central bank thinking, not least at the Federal Reserve. We do expect some impact to gold holdings from this, but given negative real yields, amplified geopolitical tensions and potential for wider market volatility, we would be surprised to see aggressive outflows over 2021-22."

Looking to next year, the bank sees gold prices dropping below $1,800 and averaging the year around $1,731 an ounce. For 2023, the analysts see gold prices averaging the year around $1,63 an ounce, down 6% from their prior estimate.

"We have pared back 2022 and 2023 expectations for gold owing to the faster pace of tapering and interest rate hikes now expected. This does still leave gold prices above $1,750/oz on average though 2023."

The bank sees a little more potential for silver prices as they raise their 2023 price forecast. The analysts see silver prices averaging 2021 around $26.80 an ounce, relatively unchanged from the prior estimate. 

Meanwhile, for next year, the bank sees silver prices averaging around $25.80 an ounce, down 0.2% from their previous forecast. However, for 2023 the bank sees silver prices around 24.30 an ounce, slightly up from their previous estimate.

Silver is expected to see continued demand as a monetary metal and increased industrial demand as the global economy continues to recover from the COVID-19 pandemic.

"We see potential rerating for silver exposure over the coming years as the demand impetus from solar PV investment is increasingly recognized – while silver is still being thrifted in solar technology, it is not being replaced. And given an improving medium-term outlook, our 2025 silver price has been raised by 10%," the analysts said.

BMO said they are generally more optimistic regarding base metals than precious metals as they upgrade their industrial metals across the board.

"If ever there were confidence in something in commodity markets, it is the positive medium-long term outlook for copper. There is near uniform agreement that, by the middle of this decade, the world will have a significant copper problem to solve for as global electrification drives demand," the analysts said.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.