Merrill Lynch increases its gold, silver price forecasts
Source: Platts
metalsplace.com
Based on expectations that the supply-demand fundamentals for gold will remain positive over the medium-term, Merrill Lynch has increased its forecast for the annual average price of gold to $675/oz from $650/oz in 2008; to $650/oz from $625/oz in 2009; and to $625/oz from $600/oz in 2010. The price forecast of $675/oz in 2007 remains unchanged, but the long-term price has been upgraded 10% to $550/oz.
"Given industry average cash costs of $350/oz, depreciation and amortization expenses of $100/oz and other costs of $50/oz, we believe that a $500/oz [price] is required (on average) for companies to break even on a profit basis," said Merrill Lynch's North American Precious Metals Quarterly. "Our forecast of $550/oz provides a 10% margin to this base and equates to a 15% discount to the current spot price of approximately $650/oz."
The positive drivers for gold include: "heightened geopolitical risk, the Merrill Lynch' foreign exchange team's forecast for a weaker dollar, ongoing dehedging, lower central bank sales, a rebound in fabrication demand and continuing growth in investment demand," said Merrill. "The negative drivers include potentially lower jewelery demand and increased scrap supply in response to high prices. Despite these issues, we believe there will be a 200-400 mt demand gap in 2007."
Merrill Lynch has also increased its 2007 silver price forecast from $13.00/oz to $13.75/oz. "Also, we are increasing our 2008, 2009 & 2010 forecasts from $12.00/oz to $13.00/oz, $11.00/oz to $12.00/oz and $10.00/oz to $11.00/oz," respectively, said the report. "We are maintaining our long-term silver price of $10.00/oz." |
