Gold to average $1,145/oz in 2015, platinum the favoured trade – Natixis

Otmane El Rhazi from The Bullion Desk.

The gold price still has room to drop further given continued strength in the dollar and the possibility that the Federal Reserve will raise interest rates some time in 2015, Natixis said.

Platinum is the more favourable trade next year, it said in a research note on Thursday.

“The strengthening dollar will continue pushing gold prices down. As the dollar strengthens so the need for gold as a safe haven ‘in times of crisis’ dissipates,” Natixis said. “Moreover, the yen and euro are expected to weaken on the back of expanding central bank balance sheets.”

Despite dovish comments from the Fed on Wednesday out of the final FOMC meeting of 2014 on when it will raise interest rates, the prospect of a higher rate in the next year – Natixis foresees a first increase in June – remains high. A move towards higher interest rates will make gold a less appealing investment because it offers no yield.

Gold will average $1,145 in 2015, Natixis predicted. Spot metal is currently trading around $1,205 per ounce, down from a 2014 peak of $1,388 in March.

“Higher yields will increase the opportunity cost of holding gold. Investors will be incentivised to enter yield-earning investments rather than holding gold, which typically incurs a cost,” it said.

As well, producer hedging is expected to accelerate, it said, which should bring more metal into the market amid existing concerns over demand, and holdings in physically backed exchange-traded products are expected to remain a source of supply.

“We would not be surprised to see a slight acceleration in outflows compared to this year as interest rates rise. Around 95 percent of gold holdings in physically backed ETPs are held in five western countries; the US alone accounts for around 55 percent of global holdings,” the broker added.

Natixis remains bullish on platinum although prices are set to rise slowly and will average $1,354 in 2015.

Platinum is currently at $1,207 per ounce, down from a 2014 peak of $1,520 in July but up from a low of $1,178 in November.

“At current platinum prices we are well below the cash cost of production of a number of major South African producers,” Natixis said. “For the past three years now, South African producers have been cutting overheads, CAPEX and even output. The only card left for them to play is to cut output further.”

Cuts in the platinum industry – particularly centred on the closure of unprofitable mines – will keep the cash cost of production at 15,000 rand per ounce, it suggested

“If the combination of dollar-based platinum price and the USD-ZAR exchange rate pushes ZAR-denominated platinum prices significantly lower than the industry’s costs of production, this will force further mine closures, which may in itself precipitate additional tension between mining companies, workers and government,” Natixis said.

“This is a scenario that cannot persist for a protracted period, as was painfully demonstrated by the industrial tensions and mine closures of the past two years,” the broker added.

In others, Natixis predicted that silver, currently trading around $16, will average $15.30 per ounce in 2015, while palladium, currently at $790, will average $770.

(Editing by Mark Shaw)

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