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(Kitco News) - Gold's brief push above $2,000 an ounce in mid-May could represent the yellow metal's high-water mark for the year as markets continue to adjust to dynamic interest rate expectations and a resilient U.S. economy.
In their latest quarterly outlook, analysts at BMO Capital Markets said that they are leaving their year-end average gold price target unchanged at $1,905 an ounce, and warned that the precious metal is losing momentum as it has not been able to hold its gains above $2,000.
"Gold has struggled for direction over recent weeks as markets digest climbing treasury yields, dollar strength, the potential lagged impact of an unprecedented cumulative rate-hiking cycle, and elevated geopolitical risk," the analysts said in the report. "Our base case remains that uncertainty coupled with macro headwinds will see gold prices well supported into Q3; however, as we gain clarity on the central bank rate trajectory and the ‘hard landing' scenario is averted, we see gold losing some of its luster into year-end."
The neutral outlook comes as gold prices hold support above $1,900 an ounce but remain unable to break initial resistance around $1,930.
The report noted that BMO's chief economist Douglas Porter does not see any serious sign the U.S. economy is rolling over, which could support the Federal Reserve's aggressive monetary policy stance.
"In our view, a severe U.S. economic downturn and consequent reactionary Fed rate cuts anytime soon are unlikely, and as such, after we are likely past the nadir in the macrocycle, we do see gold and silver prices softening into year-end," the analysts said.
While BMO sees gold running in place for the rest of the year, the Canadian bank is slightly more optimistic about silver. The bank raised its 2023 average silver price to $22.70 an ounce, up 3% from its second-quarter price forecast.
BMO's modest increase in its silver price outlook comes as the precious metal tests resistance around $23 an ounce. Although the bank is positive on silver, they do see some potential headwinds for the rest of the year.
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"Silver's supportive fundamentals have struggled to supplant muted institutional investor appetite, with little sign sustained ETP inflows will materialize near term," the analysts said.
"In our view, silver prices are poised to roll over into year-end, owing to weaker jewelry and silverware demand compared to the same period last year, industrial demand headwinds, and diminishing safe-haven demand."
Despite foreseeing challenges through the rest of 2023, the analysts noted that the silver market is supported by long-term bullish fundamentals.
"Longer-term silver demand from solar installations and the rollout of the 5G network should provide a multi-decade annuity as the world accelerates renewable targets and pushes to increase connectivity," the analysts said. "That said, despite the acceleration in renewable generation capacity targets owing to the increased emphasis on energy security, we expect ongoing thrifting and emerging technologies such as thin films to offset some of the potential gains in silver demand."
