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(Kitco News) - The average price for gold in 2012 is forecast to be $1,766 an ounce and the average silver price is forecast at $35.05 an ounce, a reduction of 8.3% and 9%, respectively, from a previous outlook, said a leading Canadian bank on Tuesday.

Bart Melek, head of commodity strategy at TD Securities, also reduced his forecast for platinum’s 2012 average price by 1.1% to $1,755 an ounce and palladium by 3.9% to $740 an ounce. In base metals, he lowered the 2012 copper average price to $3.92 a pound, a 2% reduction from the previous forecast.

He said gold, platinum, palladium, silver and copper face downside risks from disappointing Chinese, U.S. and European economic data and the potential for higher interest rate expectations in the near-term. Longer-term outlooks for these metals are more positive, Melek said, and he expected by the second half of 2012 investor interest and improving supply and demand fundamentals will push prices higher across the board.

“Now that we have reached an inflection point, where U.S. interest rates are on a higher upward trajectory, realistic hopes of QE3 have died out and rising concerns that slowing income growth in China and higher taxes in India will limit physical demand, gold will be quite subdued in the early part of second half of 2012. Given this environment, the risks are to the downside in the short term,” Melek said.

It’s possible if equities continue to rally strongly, crude oil prices fall, or hawkish statements come out from the Federal Reserve or the European Central Bank, investors could “cut their long positions further and build shorts, and bring gold down into high-$1,500s territory,” he said.

Silver faces similar risks, he added.

The slowing Chinese economy could pinch industrial metals like the PGMs and copper into the early part of the second half of 2012.

Melek said copper prices might have risen too high, too fast on improving U.S. economic data which might have been overinflated because of a warmer-than-expected winter and early spring.

Longer-term Melek said he’s more positive on commodities as the Fed is likely to keep interest rates ultra-low into 2014 and the expansion of the Fed/European Central Bank monetary base will keep the global financial system flush with cash for a while.

“Also, with the global economy expanding in a more solid way in the second part of the year coupled with energy remaining high and feeding into inflation, investors should get more excited about gold as a safe haven well into 2013,” he said.

By Debbie Carlson of Kitco News dcarlson@kitco.com

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