(Kitco News) - BMO Capital Markets looks for a largely sideways gold market in 2016, forecasting prices will average $1,050 an ounce.
This is not far below current levels but down from $1,160 in 2015, the bank said in its annual commodities outlook published late Wednesday.
“Gold and silver price expectations are down slightly, but basically sideways,” BMO said, describing upside and downside risks as “almost equally conceivable.”
The bank listed three main factors: at least one more rate hike by the Federal Reserve, a tendency for gold prices to decline during U.S. election years, and investment demand that is stable but not incrementally improving.
The bank’s foreign-exchange analysts anticipate that after the first rate hike in the year, the U.S. dollar may stop reacting violently to Fed moves.
“We believe that as the dollar eases in H2/16 or early 2017, this would put less downward pressure on precious-metals prices,” BMO said.
Safe-haven demand continues to provide price support for gold, added BMO.
“It is not a driver for significant price upside, but it prevents the downside, which we believe is the natural direction for gold prices when global economic growth is puttering along,” the bank said.
Analysts listed a potential range for the year of $925 to $1,196 an ounce.
Meanwhile, BMO expects silver to average $14/oz, listing a range of $11.36 to $17.43.
“Our base case view for silver in 2016 remains a leveraged one to gold, and thus down year-on-year. Silver price volatility was tempered last year, and could be maintained this year as industrial weakness is offset by safe-haven demand,” BMO said.
The gold/silver ratio is likely to remain high, averaging around 75, BMO said. This measures how many ounces of silver it takes to buy an ounce of gold. However, over the longer term, BMO looks for the ratio to revert to its mean in the low 60s.
BMO forecasts platinum will average $850 an ounce next year. Analysts said the metal is likely to remain under pressure due to U.S. dollar strength and the prevailing view that platinum demand will be negatively affected by the Volkswagen emissions scandal.
“We expect platinum prices to trade with the commodity complex as a whole, leveraged to the U.S. dollar and with little input from physical supply-demand fundamentals, for now. We believe the price inaction in 2014 -- after labor strikes saw global production decline by 21% -- is still a recent memory, with hidden inventories continuing to be the bane of almost every commodity market.”
Palladium is forecast to average $650, with BMO listing this as one of its “preferred” metals due to expectations for a supply deficit this year and next.
“While demand growth is relatively stable due to auto sector leverage, supply growth is almost nonexistent, with the exception of scrap supply.”
By Allen Sykora of Kitco News; asykora@kitco.com
