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BMO downgrades gold and silver prices but doesn’t see a repeat of 2013 drop

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(Kitco News) - The gold market remains caught in a new trading range below $1,800, and one Canadian bank does not see a lot of positive news for the precious metal in the final quarter of the year.

BMO Capital Markets once again lowered their price forecast for gold and silver. In a report published Thursday, the analysts said that a new hawkish bias at the Federal Reserve will hold precious metals back through the rest of this year and next.

"As inflation makes its way through value chains, a variety of central banks have either started to remove accommodative monetary policy or at least embark on that journey. And this includes the Federal Reserve," the analysts said in the report. "Even though negative real yields should prevent rapid macro asset reallocation away from commodities, caution towards precious metals is justified until the taper has taken place."

Looking at the bank's latest projections, the analysts see gold prices averaging this year around $1,781 an ounce, down 1% from their previous forecast of $1,803. At the same time, the bank sees the precious metal averaging 2022 around $1,656 an ounce, also down 1% from the previous forecast at $1,669 an ounce.

The bank sees silver prices averaging around $25.10 an ounce this year, down 3% from the previous estimate at 25.9%. By 2022, silver prices are expected to average approximately $24.90 an ounce, down 2% from the previous forecast.

Although BMO has become slightly more pessimistic on gold and silver, they noted that the precious metals are "down but not out."

The analysts said they don't expect the gold market to see a repeat performance of 2013 as prices lost significant ground as the Federal Reserve started to normalize its monetary policies after the 2008 financial crisis.

"Compared to the infamous taper tantrum in 2013, which saw the price crash nearly 30% in six months, gold has held up well thus far. Despite substantial ETF outflows seen in Q1, particularly in North America, and an expectation of tapering before year-end, we see no overwhelming reason for aggressive rotation away from gold," the analysts said.

Looking at silver, the Canadian bank still sees long-term potential for the precious metal.

"We expect to see positive investor sentiment surrounding silver's longer-term industrial uses, particularly related to the energy transition, to underpin the price over the near term," the analysts said.

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