BNP Paribas Expects Gold Downtrend To Continue Through 2017, Averaging $900

By  Paul Ploumis 11 Sep 2015  Last updated at  04:18:02 GMT

(Kitco News) - One French bank is not expecting the turn to weakness in the gold market to end anytime soon, forecasting triple-digit gold prices for 2017.

In a new report released Thursday, strategists at BNP Paribas not only lowered their 2015 gold forecast but also they also expect prices to average $900 an ounce by 2017. The bank said that it now expects gold to average $1,145 an ounce this year, down from the previous forecast of $1,160 an ounce. The bank also left its 2016 forecast unchanged, expecting to see an average price of $975 next year.

As of 11:04 a.m. EDT, Comex December gold futures were trading at $1,108.60 an ounce, up 0.6% on the day.

With its new 2017 outlook, the bank continues to recommend selling call options for $1,200 December 2015 and 2016 gold futures. The bank has been aggressively short gold options for most of 2015, seeing strong gains in its $1,300 August and October gold call options.

“We maintain the view that gold is in secular downward trend against a backdrop of U.S. dollar strength, and that the gold price will fall right through our forecast period,” wrote Harry Tchilinguirian and Stephen Briggs, the authors of the report.

The gold market saw a bit of a reprieve from its long-term downtrend in August as Chinese equity markets crumbled and worries of a global economic slowdown intensified. However, the French bank’s analysts noted that despite growing fear sentiment, gold prices only managed to hit an intra-day high of around $1,170 an ounce.

Despite the recent short-lived rally, BNP Paribas argued in its report that nothing has changed in the marketplace to shift strategists’ view that gold prices will continue to trend lower in the long term.

“Retail investors may raise coin purchases on lower gold prices but we see no reason for a revival in institutional investor demand to lift gold higher,” the report said. “The net-long futures position held by money managers on the Comex nudged higher in August but is still only a fraction of that in 2011 when gold reached its peak. Gold holdings of physically backed ETFs paint a similar picture and have leveled off in September.”

While global demand is expected to remain week, BNP Paribas also sees the market overwhelmed with increased supply.

“We seldom mention supply, but it is worth noting that globally, gold miners’ total cash costs have fallen, mainly because of the weakening of currencies of producing countries against the U.S. dollar. With basic producer margins thus holding up, we doubt there will be material cuts in mine output,” the strategists said.

Overall, Tchilinguirian and Briggs continue to expect a strong U.S. dollar -- as the Fed prepares to hike rates either next week or in December -- to push gold lower for the next two years.

Courtesy: Kitco News