Gold to average $1,183/oz this year, silver $16.2/oz – BarCap

Otmane El Rhazi from The Bullion Desk.

Gold should hammer out a base this year and next, providing good buying opportunities for the long-term investor, Barclays Capital said on Wednesday.

The broker sees gold averaging $1,183 per ounce this year. Spot metal was last at $1,185.40/1,186.20, up a $2.50 increase on Tuesday’s close.

With the relationship between gold and US interest rates crucial to prices, the timing and extent of the Federal Reserve’s raising of US interest rates from near-zero levels will be closely watched. BarCap expects the increases to be gradual, with the first increase to come later in the year.

“A June rate hike would have exposed a weak gold price floor, whereas in September, physical demand tends to strengthen in light of seasonal buying in India. Thus, although a rate hike is likely to lead to disinvestment, physical demand should buffer prices, limiting the downward pressure,” it said.

Although higher US interest rates should initially weigh on prices, “this can be trumped if other positive market dynamics are at play or if a hike is already priced in”, it added.

“Physical demand has been price responsive, but not enough to overturn the negative sentiment stemming from a hike – however, more importantly for gold, speculative positioning at the start of the year implied the gold market had not fully priced in a potential hike,” the broker said.

It also revised its silver price higher due to the better-than-expected start to the year – it now expects silver to average $16.20 per ounce in 2015. Spot metal was last at an unchanged $16.60/16.64 per ounce.

Alongside the rest of the complex, China’s data have presented a softer picture for silver consumption but the trends have not been as weak.

Still, there is scope for loss-making ETP positions to be flushed out quickly and output has not been dramatically affected by mine closures, both of which could cap silver’s upward momentum.

The top end of cost curve for primary production is probably under pressure at present but further pressure is likely if supply grows unabated, it added.

(Editing by Mark Shaw)

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