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Bookmark-Commerzbank looks for gold and other precious metals to slowly regain their luster in 2014.
The bank listed a full-year average forecast of $1,300 an ounce for gold, but also looks for the metal to climb back toward the $1,400 area by year-end. Other full-year average forecasts include silver, $21.50; platinum, $1,475; and palladium, $760.
Commerzbank looks for each of these metals to rise further in 2015, calling for gold to average $1,425 then, silver $24.50, platinum $1,625 and palladium $840.
“The gold price is likely to recover from its historic slump this year and increase moderately in 2014,” Commerzbank said in an outlook released Friday. “Investment demand should gradually revive. In conjunction with
robust demand from Asia, this indicates upward movement in the gold price to $1,400 per troy ounce by the end of 2014.
“In the wake of gold, and boosted by growing industrial demand, the silver price should also be able to make good some of its losses next year. As a result of supply problems and rising demand, platinum and palladium are also likely to show supply deficits in 2014, supporting higher prices.”
Gold, down 27% so far in 2013 and headed for its first annual loss in 13 years, was hurt by a decline in investment demand, Commerzbank said. Whereas this accounted for 35% of gold demand last year, the percentage fell to 20% this year. This was counterbalanced by jewelry demand, which rose to 59% from 44%, but this is more price-sensitive and the shift mainly occurred after lower prices, Commerzbank said.
Another noteworthy feature to the market in 2013 was a shift in demand to Eastern from Western nations, with Chinese demand especially strong, the bank said.
Commerzbank said it sees short-term downward risk in gold, but upward potential from the middle of 2014. Commerzbank looks for gold to average $1,200 in the first quarter, then $1,250 in the second and $1,300 in the third. The key, the bank said, will be investment demand.
“Stronger investment demand is essential for upward movement in the gold price,” the bank said. “The most important question will therefore be when the negative trend amongst ETF (exchange-traded-fund) investors will be
reversed. If strong demand from Asia can no longer be satisfied out of ETF holdings, as has been the case this year, the gold price is likely to rise.”
The bank looks for the exodus from ETFs to halt in early 2014 and for speculators to eventually become buyers again.
“Speculative financial investors have now largely exited the gold market, as
evident from the fact that net-long positions are at a seven-year low,” Commerzbank said. “The negative market sentiment towards gold is also reflected in negative media reports and for the most part pessimistic price forecasts. All of this may indicate a rapid reversal of the trend. After the price has successfully bottomed out, gold ETFs should report inflows again from the second quarter, supporting the price recovery.”
Much of the pressure on gold in 2013 came from market expectations that the U.S. Federal Open Market Committee would start scaling back its bond-buying program, meant to push down long-term interest rates and commonly referred to as quantitative easing. These worries will remain a negative factor for gold in early 2014, Commerzbank said, adding that it looks for QE to start winding down in March or April.
“As soon as the first step has been taken, the associated uncertainty should be dispelled and the pressure on the gold price should ease,” Commerzbank said.
The bank said it looks for gold to recover in the second half of 2014, with U.S. monetary policy still likely to be expansionary and the European Central Bank and Bank of Japan expected to remain accommodative.
“Gold is therefore likely to gain greater acceptance again from Western investors as a means of hedging against a loss of purchasing power due to inflation and currency devaluation,” the bank said.
Meanwhile, Commerzbank said silver was hurt in large part by tame industrial demand in 2013 as ETF holdings were rising. Mine supply also is increasing.
“We expect stronger industrial demand in 2014,” Commerzbank said. “The recovery in the global economy expected by our economists should provide impetus. Investment demand should increase by roughly the same extent in 2014 as this year. This is supported by the significantly lower price level, both in USD and also relative to gold. The increase in the gold price which we expect should also provide momentum.”
Meanwhile, Commerzbank said supply/demand deficits are continuing in platinum and palladium.
In the case of platinum, global mine output is not expected to increase significantly, particularly with the risk of strikes and power outages in key producer South Africa, Commerzbank said. Meanwhile, industrial demand is set to rise further, particularly with new emissions standards for diesel-powered vehicles in Europe.
“The prospect of another year of deficit and our expectations of a recovery in the gold price should support the platinum price,” said Commerzbank.
Meanwhile, supply in palladium could contract, particularly as sales from Russian state stockpiles dry up, said Commerzbank. Demand from the auto industry should benefit from continued robust car sales in the U.S. and China, which tend to be gasoline-powered vehicles that mainly rely on palladium for catalysts.
“From this perspective, the supply deficit is therefore likely to persist at a similar level next year,” Commerzbank said.
