Subdued, Cautious Tone Prevails At LBMA Conference By Debbie Carlson of Kitco News Tuesday November 18, 2014 10:54 AM (Kitco News) - A subdued, cautious tone prevailed at last week’s London Bullion Market Conference, several attendees said, with the forecast for precious metals prices in October 2015 to be near current levels to slightly higher. At the LBMA conference, market participants including producers, consumers, refiners, the official sector and bankers collectively forecast a gold price of around $1,200 an ounce by October 2015, when the next conference to scheduled to occur. Silver was forecast to rise to $17, platinum to $1,325 and palladium to $825. In comparison, as of 9:30 a.m. EST, spot gold is trading at $1,197, silver at $16.24, platinum at $1,204 and palladium at $771. The subdued and cautious mood among attendees may not be a complete surprise given that precious metals prices are flat to weaker on the year, except for palladium. Barclays analysts Suki Cooper and Christopher Louney said while the conference’s atmosphere was low-key, they said the price outlook “was not overtly negative.” For next year, Cooper and Louney said, the precious metals markets are focused on the potential for Federal Reserve rate hikes and the strength of the U.S. dollar. Participants are also reassessing their expectations for lower gold prices, with the marginal cost of mining production offering some guidance. UBS’s precious metals analysts said the outlook for gold was at best neutral, but mostly negative. There were a few attendees who saw the chance for a gold price under $1,000, they said, but overall most of the attendees weren’t aggressively bearish. “Instead, what was very clear during the conference was the lack of gold bulls, especially with the decline towards the $1,130 lows in early November weighing down on sentiment,” they said. Attendees expected further weakness for gold, they said. Although $1,000 was mentioned several times as a potential target, UBS’s analysts said “conviction was limited” as most one-year average forecasts called for $1,200. “While there is an overall lack of participation in the gold market this year, most of those that are involved are positioned for gold weakness. Amid all the negativity, the risk of an upside surprise becomes even more pronounced in the near-term, particularly given positioning,” they said. Bart Melek, vice president and head of commodity strategy at TD Securities, said compared to the consensus forecast for next year’s prices, he’s a little more bullish on gold and silver, with the TDS outlook calling for gold to rise to $1,300 by the later part of 2015 and silver above $19.50. “While optimistic about the end of next year, we do agree with the consensus that gold and silver could have another considerable slide lower should U.S. economic data start looking robust again. A drop into $1,045 territory for gold and near $14.50 for silver is a real viable risk—driven by the acquisition of new shorts and cutting of long exposure,” he said. Miners explained when gold price are under $1,200, their margins are taking a severe hit, said analysts at Bank of America Merrill Lynch. As such miners are focusing on maximizing their operational efficiencies. For those with more than one mine, this can include closing higher-cost operations and they are renegotiating contract, the analysts said. Because of the lower prices, scrap supplies are down, the analysts said. This was also noted in the World Gold Council’s third quarter gold demand trends report, which was released during the LBMA. The drop in scrap supplies shows “that automatic stabilizers are at work, although these have not been sufficient to stabilize gold prices for now given the acute lack of investor interest,” the BofA Merrill Lynch analysts said. Silver Analysts at BofA Merrill Lynch said there was “very little consensus over silver prices,” given silver price forecasts ranging between $12 and $17. “In our view, the lack of consensus is the immediate result of market dynamics seen in recent years. Given the demise of silver usage in the photography industry, the market has been structurally oversupplied for almost a decade now. Yet, against this weak fundamental backdrop, prices rallied to $50 in 2012. This was heavily influenced by strong investment demand which cleared the excess ounces on the market,” they said. But, the BofA Merrill Lynch analysts said, like gold, silver does not have a pressure reason for investors to return, “and as a result, silver has faced severe headwinds. As such, pockets of strength in some segments like the coin market have not been sufficient to stabilize prices. Or, as one coin producer put it to us, sales volumes are actually quite good, but unfortunately prices are low.” By Debbie Carlson of Kitco News; dcarlson@kitco
Posted on: Tue, 18 Nov 2014 16:11:52 +0000
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