Gold will average $1,225 per ounce in 2015, Bank of America Merrill Lynch predicted, although it could trade as low as $1,100 at some stage.
Gold faces many challenges at present, with dynamics in rates, equities and the dollar all bearish factors, the bank said in a note on Tuesday.
“The macro headwinds are exacerbated by developments on the physical market, with China for instance purchasing fewer ounces than last year, when substantial pent-up demand was released during the sharp price correction,” it said.
From a supply and demand perspective, prices will continue to be well supported around $1,200, particularly given current levels of jewellery demand. But this implies that a meaningful pick-up of investor sales is necessary to push prices down to $1,000, it added.
Spot gold was last up $32 on Monday’s close at $1,234.30/1,235.10 per ounce but down from a 2014 peak of $1,388 in March.
Diverging central bank activity has perhaps been most visible in the steady appreciation of the dollar, which ultimately dampens gold prices. Given that the US is a relatively closed economy, currency movements may not necessarily have a major impact on growth but they have contributed heavily to another leg lower in inflation expectations, which contributed to a push higher in real rates, BoA ML added.
“Most of the headwinds for gold investors have originated in the US,” it said. “The US economy emerging from crisis mode has prompted the Fed to normalize monetary policy. This in turn increased headwinds to gold because the ECB and the Bank of Japan continue easing.”
Recent macro dynamics have left the global economy and gold in an uncomfortable position, the bank added.
“One of the key issues at present is that central banks in Japan and the eurozone look to aggressively reflate their economies, which, given exchange rate movements, makes a reflation of the US somewhat more challenging,” it said.
“With signals few and far between that the Fed is changing its policy approach, gold may not have seen the lowest print yet and there is a risk prices could fall to $1,100 per ounce by the second quarter of 2015,” it added.
Silver will average $18.88 per ounce for 2015, the bank predicted, up from current levels of around $17.
Although the market has been structurally oversupplied for years, prices have yet to be affected because investors have absorbed the extra volume for a long time.
But non-commercial demand is absent because Chinese purchasers have not returned to the market in size following the collapse in price from $50, the bank added,
“There is little scope for this dynamic to change, so silver prices are unlikely to break to the upside in 2015,” it said. “[But] silver coin offtake has picked up of late, partially in reaction to the sharp price declines. This may be an early warning sign that silver is not a one-way trade for all market participants.”
Prices of platinum and palladium, meanwhile, following the five-month strikes in South Africa earlier this year, will both rise because the structural deficit in both metals will continue into next year, Boa ML predicted.
The strikes cost an estimated 1 million ounces or 25 percent of annual platinum production, the bank said.
“Yet, these disruptions have had only a limited impact on prices, which we believe was heavily influenced by continued PGM deliveries from inventories the miners had built in the run-up to the strike,” it added.
It sees platinum average $1,438 per ounce and palladium $925 next year.
“Palladium has been in deficit for years, which is a key reason it was the best performing metal in already 2013. Fundamentals remain solid and we believe the announcement by Norilsk Nickel to finance the Russian central bank’s stockpiles as a sign the industry leader is looking to keep the physical market tight,” BoA ML said.
(Editing by Mark Shaw)
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