BMO Ups 2018 Average Gold Forecast To $1,327/Oz
(Kitco News)- BMO Capital Markets has revised upward its average gold forecast for 2018 by 4% to $1,327 an ounce, looking for retail investment topick up on inflation concerns and big investors to want exposure due togeopolitical worries.
As of 9 a.m. EDT Wednesday, spot gold was 2.5 % higher sofar in 2018 to $1,334.90 an ounce.
“The return ofgeopolitical tension and concerns over the duration of industrial-led globalgrowth have certainly offered some support, even if underlying conviction onowning precious metals as an asset class seems low,” BMO said. “For the comingperiod, we believe the return of inflationary pressures...will generate increasedinterest levels.”
The bank said gold has benefitted from what it terms “macroasset allocation,” such as inflows into physically backed exchange-tradedfunds. However, there has been more muted interest in “micro asset allocation,”which it characterizes as retail buying, which has been hindered by Indian importrestrictions and alternative investments in emerging markets.
“In an inflationaryenvironment, overlaid with rising trade friction, we expect a return of retailbuyers where the need to increase allocation to gold as a hedge is rising oncemore,” BMO said. “In contrast, we may see macro asset allocation wane somewhat,particularly if the U.S. dollar strengthens. With real U.S. rates now back inpositive territory, this is the main factor in our steadily declining goldprice outlook in future years.
BMO sees gold averaging $1,275 in 2019 and $1,250 in 2020.
“However, in the near term, the rising geopolitical risk isset to keep macro asset allocators interested in gold,” the bank said. “Thiscould create a sweet spot into Q2 where macro and micro are for once aligned onthe positive side.”
BMO also listed its “preferred” equities amongprecious-metals producers: “Newmont Mining and Kinross Gold for attractiverelative value; Endeavour Mining, Fortuna Silver and SEMAFO for delivery ofproduction growth; Argonaut Gold, Kirkland Lake Gold, Premier Gold and IAMGOLDdue to significant upcoming catalysts; and Continental Gold and PretiumResources among developers.”
Meanwhile, BMO sees silver averaging $17.30 an ounce thisyear and $17.60 next year. As of 9 a.m. EDT, spot silver was at $16.396 anounce.
Analysts reported that consumption of silver by thesemiconductor industry is benefitting from “an extremely strong demand cycle”and ETF holdings are up 2% so far this year. However, this has been offset by a“collapse” in silver-coin sales in every major region except Japan, althoughBMO also expects a “moderate” recovery in this demand.
“Longer term, we do feel silver’s industrial uses willproduce some outperformance, even if it has missed out thus far in the currentcycle,” BMO said. In particular, photovoltaic demand may pick up for solarpanels, with the move toward thrifting “now in the past,” analysts added.
BMO projected platinum will average $990 this year and$1,044 next year. The early-morning price was $938.20 an ounce.
BMO looks for palladium, which soared in 2017, to average$962 this year but only $915 in the second half. The metal was last trading at$975.45, giving it a premium of $37.24 over sister metal platinum.Historically, platinum had the upper hand until last autumn.
“Headwinds [for palladium] in the form of abundantabove-ground inventory present a cap to prices while an uptick in scraprecovery is expected on the back of recent price strength,” BMO said. “In spiteof this, 2018 will still mark a decent deficit, but it may perhaps be lessacute than that seen last year.
“Mine supply is forecast to return to growth this year witha 2.7% increase and with global auto sales growth expected to slow, concernsover substitution back towards platinum are increasing. As such, we are notbelievers that the palladium premium will hold.”
By Allen SykoraFor Kitco News
Follow @AllenSykora
asykora@kitco.com 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.