Author: Paul Ploumis
02 Dec 2014 Last updated at 04:17:12 GMT
(Kitco News) - Citi Research forecasts 2015 gold prices to average $1,220 an ounce and silver prices to average $16.50 an ounce, saying they are neutral on the prices for those precious metals.
The bank says it is bullish on platinum and palladium prices, forecasting average 2015 prices of $1,350 an ounce and $870 an ounce, respectively.
All of these price forecasts are above current price levels.
Gold prices fell under a host of bearish influences, from negative investor sentiment, a stronger U.S. dollar and low inflation expectations, Citi said. The metal may continue to see weaker prices, but "there are increasing reasons to think that further downside moves will be limited," they said.
Investor attitudes in general appear to be turning a corner, which could mean a more stable market in 2015. The bank expects modest net exchange-traded-fund inflows as current investors have a more long-term focus.
"To the extent the gold prices wrap around a compressed $1,100-$1,300 range over the next year, we would expect significantly less hedge fund selling and limited to no producer hedging activity towards the lower end of that range suggesting a bottom in length might be near," they said.
Citi said gold will still deal with low crude oil prices and global growth concerns, which weigh on the inflation outlook for both the short-term and longer-term, along with U.S. dollar strength. However, the bank says, these factors are priced into the market more now and this is the consensus view, rather than being a surprise.
Also, the physical market is showing some signs of life after a sluggish 2014, and they said they expect a boost in Chinese and Indian demand.
In silver, the challenge facing that market is the indifference of the professional investor, versus the retail buyer.
"Money manager pessimism has been driven by weakening gold prices on the one hand and growing uncertainty over the economic outlook in China and Europe, which is undermining the silver's industrial demand outlook on the other," Citi said.
However, retail demand is strong for silver, as seen by the fast buying pace of U.S. silver coins and the ETFs, which Citi said has "significantly" more retail buyers than similar gold-backed funds.
Among, platinum group metals, prices fell about 18% for palladium and 20% for platinum between September and October, Citi said. Weakening fundamentals have hit platinum, while palladium fell on ideas that trade sanctions on Russia to pinch metal movement were increasingly unlikely.
A stronger U.S. dollar will weigh on all commodities, but palladium will be less affected by this because of tight mine supply and expectations of strong auto production growth in China and the U.S. will support the metal.
"We remain highly positive for palladium's fundamentals for 2015, (but) we have scaled back our price expectations, forecasting prices to average $870/oz, a $55/oz reduction versus our previous expectations. However, we continue to expect palladium prices will regain the highs seen in September this year by the fourth quarter next year, despite U.S. (dollar) headwinds, and renewed discussion over the existence of Russia government stockpiles and renewed discussion over the existence of Russia government stockpiles," they said.
For base metals, Citi forecast 2015 average London Metal Exchange aluminum prices at $2,000 a metric ton, with copper at $7,035 a ton. Lead is forecast at $2,175 a ton, nickel at $21,625 a ton, tin at $22,150 a ton and zinc at $2,315 a ton. The bank says it is bullish on nickel, copper and lead prices, while neutral on aluminum and zinc prices.
Courtesy: Kitco News