Natixis forecast sees gold price averaging $1,150/oz in 2015

Otmane El Rhazi from The Bullion Desk.

The gold price could average $1,150 and $1,055 per ounce in 2015 and 2016 respectively as the normalisation of Federal Reserve monetary policy and further currency weakness in Europe and Japan drive the dollar higher, Natixis said in a report released on Monday.

The members of the Fed’s policy board are locked in what has become an increasingly public debate on when will be the right time to raise interest rates, which have been near zero since December 2008. The current market consensus is that the first increase will happen in the second half of this year.

“As a result of the improving US economy and higher interest rates, so we expect that yields will continue rising. This raises the opportunity cost of holding gold which could in turn lead to an outflow from investors holding the metal,” the French bank said.

As a result, Natixis says that it “would not be surprised” to see a small acceleration in outflows of physically-backed ETPs as US interest rates rise.

The effect of central banks activity on the gold market should be neutral, Natixis says, with only modest outright purchases and small amounts of selling taking place, though more banks are expected to repatriate metal.

“While repatriation will not have a direct effect on gold prices, it could influence gold lease rates if less gold becomes available for lending,” the bank notes.

In the physical markets, the bank says that unless India reduces its 10 percent import duty, Asian demand will remain at weaker levels than in previous years.

The bank does however note that geopolitical tensions could drive up gold prices. “Although the tensions between Russia and Ukraine have already been factored into gold prices, further expansion of Russian ambitions in Ukraine and other Baltic countries could also raise the price of gold,” it said.

On the supply side, mining output growth will likely help to compensate for a drop in scrap supply of gold, Natixis says, with demand and in particular investor demand expected to weaken.

Though if the gold price does indeed continue to fall, prices will approach the all-in sustaining cash cost of production, which Natixis says could see more producers become inclined to hedge.

“In our worst case scenario, we could see gold prices averaging $1,050 per ounce in 2015, which could take fourth-quarter prices to as low as $950 per ounce, followed by an average of $825 per ounce in 2016, close to the average cash costs of production,” the bank said in its report.

“Looking at our high case scenario, in a situation where economic challenges in Europe continue to mount and Greece exits in a disorderly way, we could potentially see gold prices rising sharply,” it adds.

Natixis’ high case scenario sees gold average $1,350 per ounce in 2015 and $1,600 in 2016.

Gold futures on the Comex division of the New York Mercantile Exchange are currently trading at $1,187.00 per ounce.

(Editing by Tom Jennemann)

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