BMO Capital Markets has joined other banks in upping price forecasts, calling for gold to exit the year around $1,400 an ounce and silver around $21.
With its higher forecasts for the metals, bank analysts said they also hiked price targets for shares of gold- and silver-mining companies by an average of 24%.
The fresh forecasts come after gold and silver have already risen more than 20% during the early part of the year. Comex June gold recently hit a 15-month high just above $1,300 an ounce, although it has since pulled back and was trading around $1,277.90 – up $2.40 for the day – as of 10:32 a.m. EDT.
“The more constructive (gold-silver) view is predicated on uncertainty in the global economy persisting through the remainder of this year, driving incremental safe-haven demand,” BMO said in an overnight research note. “We focus a lot on China for commodities, and in our view the excess capacity built up over the last 10 years continues to be a drag on global industry and prices. In other words, what’s bad for base-metals demand is good for gold and silver.”
BMO also commented that the gold market is factoring in little probability of a U.S. rate hike through July, so the question facing the market is whether the Federal Reserve lifts again by year-end.
“If the probability of a Fed rate hike by November-December continues to decline, this should remain supportive for gold prices.”
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Comex June gold futures - Delayed Quote
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The bank does offer some caution on gold, pointing out that a summer rate hike could provide a shock to the market, and also because the seasonal trend in gold over the summer tends to be lower. BMO pointed out that there have been only four times in the last 40 years that prices did not decline in the May-July period and then continued to improve into year-end, as analysts are now forecasting for this year.
BMO does look for gold to pull back over the next few years, listing a 2019 average forecast of $1,200 an ounce.
In the mining sector, price targets for shares of large producers were upped by an average of 8.2%, royalty stocks 12.5%, silver companies 23.9%, small producers 24.9%, medium producers 27.7%, and project developers by 27.9%.
“With higher gold and silver prices we have seen a migration in investor interest towards those companies that have underperformed year to date,” BMO said. “A word of caution for investors: the underperformance of a number of these equities is often company-specific rather than metal price dependant.”
A JP Morgan analyst also suggested this week that $1,400 “ is very much in the cards this year” for gold. Goldman Sachs also upgraded its gold outlook, although this bank sees a pullback from current levels. |
