(Kitco News) - Citi Research hiked its forecasts for most commodities, including gold, on Tuesday.
The bank now looks for Comex gold to average $1,280 an ounce in the second quarter, $1,300 in the third, but then cool to $1,250 for the fourth. Citi’s full-year average forecast is now $1,255 an ounce.
“Commodities markets appear to have turned the corner and, led by the petroleum market, are accelerating their price recovery from the lows of the last year, especially since this past January,” Citi said. “While the price increases experienced since early 1Q (first quarter) remain subject to the ‘new normal’ of relatively high volatility, it appears there is no turning back any time soon.”
The report addresses a wide range of commodities, including oil (Brent crude seen topping $50 a barrel by the third quarter and around $65 by the end of 2017), grains, natural gas, softs, base metals and precious metals.
“We push out our constructive view on gold prices into 3Q’16 despite mixed messages from the Fed,” Citi said.
The bank commented that recently released minutes of the U.S. Federal Open Market Committee suggest a more hawkish outlook among policymakers, leaving open the possibility of a June or July rate hike, assuming data do not point to an economic downturn and there is not severe market volatility.
“However, the risk of ‘Brexit’ (U.K. exit from the European Union) is likely to complicate matters for U.S. policymakers, and we do not expect the Fed to move until after the June referendum…,” Citi said. The bank said its economists anticipate just one rate hike in 2016 toward the end of the year, “effectively limiting the likelihood of a correction in gold prices for the next two quarters.”
As a result, Citi hiked its full-year average forecast to $1,255 an ounce from $1,200 previously.
“Hence, while prices have fallen 3% (month to date) in May, we believe this may in fact prove to be an opportune moment to ‘buy the dip,’” Citi said.
Citi analysts said they expect investment demand to remain robust in the month ahead. Macroeconomic uncertainty, a softer U.S. dollar since the start of the year and shrinking inflationary expectations globally have made gold one of the best-performing assets for the year to date, Citi commented. Analysts added that while Asian demand softened in the early part of 2016 from a year ago, this “should return to normalcy over the court of the year.”
Citi now anticipates a full-year average silver price of $16.15 an ounce, with a platinum forecast of $975.
The implementation of stronger emissions standards for motor vehicles, which use platinum group metals for catalytic converters, should “dominate the demand profile” for these metals, Citi said. However, the debate about the size of above-ground stockpiles “remains a key question” for PGMs, Citi added.
By Allen Sykora of Kitco News; asykora@kitco.com