By Kitco News
Friday October 14, 2016 08:28
(Kitco News) - Credit Suisse says the recent consolidation in gold “provides a more attractive entry point” and looks for the metal to climb back above $1,400 an ounce in 2017.
Analysts say they look for the metal to hold $1,200 after a sell-off in recent weeks driven by expectations of a Federal Reserve rate hike, stronger U.S. dollar and reduced chance of a Donald Trump presidency in the U.S. They attribute recent selling largely to liquidation in the futures market, pointing out that holdings in exchange-trade funds have continued to rise, although slower than earlier in 2016.
As of 8:20 a.m. EDT, Comex December gold was trading down $5.40 for the day to $1,252.20 an ounce.
Credit Suisse says its bullish gold outlook remains intact due to longer-term interest-rate expectations, uncertainty, wealth preservation, central-bank buying and mine supply. They look for $1,325 gold in the fourth quarter and $1,450 in the first quarter of next year, with the market testing the $1,500 level sometime in 2017. Credit Suisse’s full-year 2017 projection is $1,438.
“While gold has pulled back recently to ~$1,250, we see the metal supported at $1,210 if the market prices in a 100% probability of a Fed rate hike in December and would note that our fixed-income team
continues to forecast no hikes until May 2017,” Credit Suisse says. “We believe gold will see a rally once the Dec. 14th FOMC meeting passes, or if global developments reduce the likelihood of another rate hike.”
Credit Suisse calls for a 144-tonne supply deficit this year to grow to 211 tonnes in 2017.
“The higher deficit in 2017 is driven by declining gold-mine supply, sustained investment demand from ETFs and central banks and a small rebound in gold-jewelry demand,” Credit Suisse says. “Recycled gold supply is price sensitive and is forecast to rise modestly in 2017.”
Analysts say mine supply will be “challenged” even with $1,300-an-ounce gold, pointing out that reserve lives have fallen from 14 years as of 2011 to 10 years at the end of 2015, which is expected to be the peak production year. A higher sustained price will be needed to convert more resources into reserves and bring new projects on line, Credit Suisse says.
Analysts say they also have a “constructive view” on silver due to financial-asset qualities such as ETF flows, international capital flows toward safe havens and a higher geopolitical-risk premium, all offsetting an impending Fed rate hike and the Credit Suisse’s forecast of rising silver-mine supply. Credit Suisse forecast $18-an-ounce silver in the fourth quarter and $19.20 in the first quarter of next year. The bank left its 2017 full-year forecast unchanged at $19.