Gold, silver doldrums to continue in 2015 – Natixis

Noting that events in the United States are expected to exert the biggest impact on gold prices as they continue to disintegrate investors’ need for a safe haven, Natixis Commodities Research has predicted a gold price base forecast of an average of $1,170/oz in 2015 and $1,180 in 2016.

“For physically backed gold ETPs, we expect that current gradual outflows will continue during 2015,” advised precious metals analyst Bernard Dahdah and head of commodities research, Nic Brown. “We do not expect sharp outflows as we believe that most institutional investors already exited their positions in 2013.”

As central bank purchases were negligible in 2014, Natixis expects that central banks will continue to have “a somewhat neutral impact on the market next year. We do not expect a return of large purchases such as those during the financial crisis, most of the central banks that sought diversification in gold have already reached their target holdings.”

Chinese gold consumption is expected to be slightly strong next year as new exchanges make gold purchases more accessible to Chinese investors.

“Although India’s trade deficit has narrowed significantly, we do not expect that gold import tariffs will be loosened anytime soon,” said the analysts. “That said, we expect Indian economic growth to begin to improve over the period 2015-16, which offers the prospect of a potential reduction in imports tariffs on gold.

Observing that aggressive gold mining cost cutting has reduced all-in sustaining costs of production to somewhere around $960/oz, Natixis anticipates that the all-sustaining cost of production “to return to an upward trend once producers have eliminated other sources of cost cutting.”

“On the producers’ side, there is a risk that miners may return to hedging future output if gold prices threaten to fall below cash costs of production,” said Dahdah and Brown. “This represents potential source of supply in the market, which could help to accelerate any decline in prices.”

From July to the end of September silver prices dropped by almost 20%, according to Natixis.

“The strong correlation with gold meant that the price of silver dropped as a result of a strong economy and US economy. Although silver mine supply is increasing, the drop in silver prices has led to a contraction in the supply of silver scrap. As for demand, our main concern remains the ever increasing large amount of silver being held in physically backed ETPs,” said the analysts.

Based on a positive outlook on the US economy, and additional risks attaching to silver prices (low production costs, potential for ETPs sales), Natixis predicts an average silver price of $15.80/oz in 2015 and $16.20/oz in 2016.

“Over the last two years, supply-side issues have been the main drivers behind the price of platinum,” the analysts noted.

Since the end of South African strikes in July, Natixis observed “the price of platinum has collapsed, not because of an increase in supply but because of extreme weakness in demand.”

“In our base case scenario we see platinum prices rising to $1,450/oz in 2015 and $1,550/oz in 2016,” the analysts advised.

Meanwhile, automobile demand from North American and developing countries “should help lift demand for palladium but at a slower pace than previous years given expectations of moderate growth in developing countries,” they predicted.

“In our base case scenario we see palladium prices at $770/oz in 2015 and $740/oz in 2016,” they added.

Base Metals
“Of all the base metals, there is perhaps the greatest potential uncertainty surrounding the outlook for nickel,” said the analysts.

“Our central forecast anticipates a period of deficit during 2015H1, resulting in an average LME nickel price of around $19,000/tonne over 2015 as a whole, although there is scope for substantial variation around this mean. By 2016, we would expect the market to have settled more closely upon its longer-term equilibrium, hence our forecast for an average price of $17,375/tonne for that year,” Natixis predicted.

Meanwhile, Natixis’ analysis of lead supply and demand suggests the market will run a cumulative deficit of 20,000 tonnes over the period of 2014-2016. Therefore, the analysts forecasts lead prices will average $2,145/tonne in 2015 and $2,195/tonne in 2016.

However, the analysts are projecting a decline in copper prices to around $6,335/tonne in 2015. “This would be followed by a gradual recovery in copper prices in 2016, averaging $6,500/tonne, as market expectations focus increasingly upon prospective deficits in the period out to 2020 rather than the surplus in the market during 2015-16.”

As the zinc market tightened over the past year, zinc prices have rallied to around $2,300/tonne in September. “Despite forecasts for modest demand in growth over the coming few years, the global zinc market is expected to tighten further as supply becomes increasingly constrained, and new mines are not expected to arrive until existing inventories are dangerously close to depletion,” the analysts advised.

“Against such a backdrop, we would expect to see substantial upward momentum in zinc prices over the period 2015-16,” they stressed. Natixis expects zinc prices to average $2,520/tonne in 2015 and $2,725/tonne in 2016.