Gold will average $1,220 in 2015, with both supply and demand for the metal expected to fall, Citibank said.
It sees demand for the metal at 4,189 tonnes in 2015 against 3,030 tonnes of supply, it said, while the all-in cost of production creates negative margins and causes producers to exit the market.
“In the short term, miners will continue production provided operating cash costs are covered,” the bank said in a note on Tuesday.
Some five percent or around 60 tonnes of mine supply is at short-term risk of closure due to negative cash cost margins created by the lower gold price, it said, citing Metals Focus estimates.
Spot gold is currently around $1,200 per ounce, down from a 2014 peak of $1,388 in March.
“We actually project mine supply modestly contracting into 2015 as cost/margin issues bite,” it added.
Fund positioning and investor attitudes generally are changing, prompting Citi to believe that further downside moves will be limited.
“[These] will revert to a more stabilizing feature in 2015 as the market has cleared the large overhang of net length from 2011/2012,” it said.
The bank sees 2,460 tonnes of jewellery demand and 440 tonnes of ‘official sector’ purchases next year, which includes central bank purchasing.
“Central bank buying has received significantly more focus in recent months [when] ongoing economic and geopolitical instability encouraged central banks to continue to seek the protection and diversification of gold with year-to-date net purchases to 335 tonnes,” it said.
“However, more importantly for gold has been the Russian Central Bank’s admission of stronger buying in October taking year-to-date purchases to 150 tonnes compared to 77 tonnes last year partly in response to sanctions, but also a desire to diversify reserves, a trend we expect to continue in 2015,” it added.
Silver will average $16.53 in 2015, with Citi expecting both supply and demand to rise to 1,064.4 billion ounces. Spot silver was last at $16.20 per ounce, down from a 2014 peak of $22.18 in February.
“On the supply side, we expect the surge of new mine supply, which began to hit the market this year, to continue into 2015, with an additional 21 million ounces of silver supply coming into the market. The surge is largely coming from by-production supply from the copper sector and lead/zinc sector, which now accounts for around 70 percent of silver supply,” the bank said.
Jewellery demand should increase at 220.5 million ounces and industrial demand to 568.2 million ounces from 529.8 million ounces in 2014.
“Industrial demand for silver is set to gain some traction across a number of sectors over the next two years, driven by a recovering PV (solar cell) sector, plus growing use in new end-uses such as medicine and nanotechnology,” Citi said.
Citi sees platinum averaging $1,350 per ounce, with supply increasing 16.9 percent to 7,158,000 ounces in 2015 from 6,121,000 ounces this year as South African supply returns to capacity following strikes earlier this year. But demand will ease to 7,403,000 ounces from 7,421,000 ounces in 2014, a 0.2-percent drop.
Platinum was last trading around $1,220 per ounce, down from a 2014 peak of $1,520 in July.
Palladium will average $870 per ounce, the bank said, with supply again set to increase as South African supply returns to normality. Palladium was last at $800, down from a 2014 peak of $911.50 in September.
Supply will total 6,614,000 ounces in 2015 against 5,904,000 ounces in 2014, while demand is set to fall 2.6 percent to 10.062 million ounces, leaving a 1,181,000-ounce deficit.
(Editing by Mark Shaw)
The post Gold price to average $1,220/oz in 2015, silver $16.53/oz – Citi appeared first on The Bullion Desk.
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