Bank of American neutral on gold price – no longer holding $3,000 target

The possibility of three highly effective vaccines in 2021 has changed the landscape for the gold market, according to analysts at Bank of America Securities.

In BoA's 2021 outlook presentation, Francisco Blanch, head of global commodities & derivatives research, and Michael Widmer, metals strategist at the bank, announced a significant shift in their gold forecast for 2021. The bank no longer expects prices to hit the $3,000 an ounce target.

"We are now neutral on gold," said Blanch. "We see a risk of rising long-term interest rates."

Inits updated forecasts, the bank sees gold prices averaging the year around $2,063 an ounce.

"As the global economy opens up, gold faces more challenges, making it tricky to hit $3,000/oz; that said, the ongoing fiscal and monetary stimulus should push the yellow metal above $2,000/oz again," the bank's analysts said in its 2021 outlook report.

The comments come as gold prices continue to struggle to attract some buying momentum as the market test another critical support level. December gold futures last traded at $1,801 an ounce, down 2% on the day.

Bank of American made headlines in April as they expected significantly higher gold prices due to strong momentum and significant monetary policy action from central banks.

In Tuesday's presentation, BoA expects that energy commodities, which suffered significantly in 2020, will outperform next year as the economy recovers from the devastation caused bythe COVID-19 pandemic. At the same time, the analysts are also bullish on industrial metals, particularly copper and nickel.

As energy prices outperform commodities next year, the analysts expect Brent Crude oil to rise to $60 a barrel by the summer.

"We see a world in a cyclical recovery, and that means we could see higher interest rates," Blach said. "We are not outright bearish on gold. Fiscal stimulus programs will keep investors in the market, but eventually, there is a big rotation underway, and in a cyclical commodities rally, there is some likelihood of precious metals becoming lighter."

Widmer noted that rising inflation could be met with higher nominal interest rates. He said the question is whether inflation increases faster than nominal interest rates to keep real interest rates lower.

Blach said that the big shift in their gold outlook is because of the recent vaccine news. He explained that markets were expecting vaccines to be about 60% effective, which would have meant a slower recovery.

He added that the 90% effectiveness of all three potential vaccines could mean that life gets back to normal quicker in 2021.

"I think that's what the markets are starting to pricing and why we've had such a big rotation in such a short period of time," he said.

The bank has lowered its outlook for silver, but they see the metal outperforming gold as its industrial demand picks increases in a global economic recovery.

Widmer added that silver's outlook remains bright as a new focus on green energy could increase demand for solar panels.

"Silver is our preferred play on rising investment in solar panels," the analysts said in their report.

Bank of America expects silver prices to average next year around $29.13 an ounce.
 

By Neils Christensen

For Kitco News

 

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Peak in gold price? Precious metal to drop below $1,650 in next two years, says Westpac

Gold's record high of $2,070 an ounce was likely the peak, at least for now, according to Westpac, which sees gold dropping below $1,650 in the next two years.

Risk aversion has peaked, and so has the gold price, Westpac senior economist Justin Smirk said in his November update. "2020 has seen a peak in risk aversion, central bank liquidity, and global uncertainty hence our forecast for gold prices to ease in 2021," Smirk said.

Westpac projects for gold to average below $1,760 an ounce by the end of next year and then drop all the way to $1,633 at the end of 2022.

The situation will turn around only by mid-2023, when the precious metal will begin to climb and rise to $1,848 by September 2024, according to the long-term forecast.

This outlook comes as gold has been on a losing streak amid better economic data and more risk-on sentiment in the marketplace in light of positive COVID-19 vaccine news.

At the time of writing, December Comex gold futures were trading at 1,834.00, down 2.05% on the day after shedding nearly $40 on Monday.

"U.S. equity markets recorded gains, helped by positive vaccine news. Currencies were notably buffeted by stronger U.S. PMI data, which helped the USD bounce off a three-month low. U.S. bond yields rose slightly," Westpac strategists summarized on Monday.

Vaccine developments are "game changers" for the U.S. economy, said Westpac chief economist Bill Evans.

"Our forecasts have been for a fairly 'steady' profile for U.S. Treasuries through 2021 as markets were uncertain about the recovery outlook in the face of competing 'forces' – prospects of a vaccine and the sharp lift in case loads," said Evans on Monday.

The risk-on sentiment seems to be winning the tag of war between positive vaccine news and a sharp rise in coronavirus cases.

"These earlier and more convincing than expected results on the vaccines … point to markets favoring the improving vaccine outlook over the immediate threat from rising case-loads. And as we move through 2021, that dynamic will become more apparent," Evans said.

A more optimistic economic outlook could also pressure the Federal Reserve to begin to curtail its loose monetary policy next year, the chief economist added.

"We accept that the Federal Reserve may remain active in the Q.E. space through 2021 but feel that the optimism associated with the successful distribution of vaccines through 2021 will be the dominant market force while providing the Fed with some scope to ease back on support," he noted.

Westpac also raised its forecast for U.S. 10 year Treasuries through 2021. "We have now brought that rate profile in 2022 forward to 2021 with the 10-year bond rate rising from 0.80% in December through to 1.2% by end 2021," Evans added.

One concern to watch with the introduction of a vaccine is the percentage of the population choosing to get it, Westpac senior economist Elliot Clarke wrote.

"One of the main challenges after approval will be the extent of take–up of the vaccine. For the spread of the virus to be effectively curtailed, at least 60–70% of the population will need to achieve immunity. Even for a highly effective vaccine that 'works' say 90% of the time, that will require a high take up rate in the order of 65–80%. Studies across the U.S. and Europe have seen just over 50% of adults indicating they would accept a COVID–19 vaccine," Clarke noted.

Also, important to keep in mind that the U.S. economy is not out of the woods yet, and it will need more fiscal stimulus.

"Without a meaningful, medium-term focused stimulus package after January's inauguration, the U.S. economy still risks getting caught in a sub-trend growth, high–unemployment environment in 2021 – with considerable downside risks," Clarke said.
 

By Anna Golubova

For Kitco News

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Gold’s big question: Can the bull market outlive a pandemic?

Gold’s record-breaking bull market is facing an existential question after this month’s pharmaceutical breakthroughs: what happens to the rally once Covid-19 vaccines start rolling out?

 

 

 

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Is gold price in a zero-sum game? Here's the catalyst needed to go higher

Is the gold market stuck in a zero-sum game as the positive vaccine news is balanced out by high levels of anxiety due to the surging coronavirus cases?

"Investors continue to reassess the risk of stricter containment measures against the optimistic prospects of a vaccine," said ING strategists. "This dichotomy may prove to be a zero-sum game for markets at the moment, and we could see risk sentiment face further stabilization as we head into Thursday's Thanksgiving holiday in the U.S."

This week saw massive gold-backed ETF outflows, which weighed on the precious metal. But the market held its ground at the critical $1,850 an ounce level and managed to end the week on a slightly more positive note, with December futures last trading $1,872.30, up 0.58% on the day.

"Gold prices have been under pressure since the positive vaccine announcement on Nov. 9, but prices have found support on dips below $1,865/oz, at least for now," said Standard Chartered precious metals analyst Suki Cooper.

However, Friday's upside in gold should be taken with a grain of salt as it represents short-covering ahead of the weekend, said Kitco Metals global trading director Peter Hug.

"Today's move to the upside is just a pattern, covering short positions. People don't want to be short on the weekend. Selling usually starts on Monday," Hug noted.

Nevertheless, Hug said that he'd rather be long-gold next week than short-gold. But he warned that trading will be thin next week due to the Thanksgiving holiday, and investors must brace for extreme volatility. "When you have a thin market, you can get a lot of volatility," Hug said.

A similar view was expressed by Afshin Nabavi, senior vice president at precious metals trader MKS SA. "There's more potential on the upside than downside next week," Nabavi said.

Another week has gone by with gold stuck in a range between $1,850 and $1,900. "It's been a hectic week, but at the end of the day, we haven't come out of the trading range. Next week's range remains at $1,850-$1,900," Nabavi noted.

And, according to analysts, the precious metal currently lacks a catalyst strong enough to take it higher or lower.

The biggest and most likely driver that could push gold back above the $2,000 level is stimulus, said Hug. "The market is still waiting for a catalyst. From technical support, $1,850 is still showing resilient support. Catalyst will be a stimulus, and it might not come until January."
 

Biggest risk to gold: pace of ETP redemptions

Until more stimulus is introduced, the most significant risk to gold is the pace of the gold-backed exchange-traded-products (ETP) outflows, warned Cooper.

"Biggest risk for gold prices is the pace of ETP net redemptions, one of our key watch factors. Previous corrections have seen modest net outflows of 20 tonnes. Still, outflows have already exceeded 50 tonnes for the month, on track to be weakest since April 2019," she said on Friday.

As coronavirus cases rise at record levels, government shutdowns could add to people's impulse to jump out of gold and into cash, noted Hug. "When you get that type of uncertainty, human nature is to move into cash. That's why you are seeing liquidation in some of the metal positionings," he added.

More shutdowns in the U.S. could help get stimulus out faster. Still, the additional damage they create could be dangerous for the economy, warned ING economists.

"With Covid cases on the rise across the U.S., we are seeing more states announce new containment measures. In the likes of Michigan, Wisconsin and California, we have seen dine-in restaurants/bars, gyms and places of worship forced to close while other states have introduced curfews/stay at home orders," the economists said. "These measures are likely to spread to other states but may not be enough to limit the latest wave of the virus if evidence from Europe is anything to go by. Rising hospitalization rates after next week's Thanksgiving holiday, historically a time for family gatherings, could hasten more aggressive measures, which would be more economically damaging."

Investors who got into gold and silver in March still have about a $300 and a $10 profit, respectively. "As markets consolidate and don't break out, people start to get impatient and tend to take money off the table," Hug pointed out. "Equity market is still holding. So, many are putting money into bonds for safety; some are rotating into the equity market."

RJO Futures senior commodities broker Daniel Pavilonis added that he also does not see gold breaking out until there is "a firm commitment to getting sizeable stimulus."
 

The long gold trade still intact

Those investors who'd like to be long gold, at least in the medium term, continue to see price dips below $1,860 an ounce as opportunities to buy, said Cooper.

Hug also noted that any weakness in the gold market is an opportunity to add to positions for medium and long-term investors.

There is still a chance that gold could drop to $1,820 an ounce next week, said Walsh Trading co-director John Weyer. "We could still see it break down to $1,820. After that, I'd be looking it a longer play in gold. In January-February, we could see an upward move above $2,000. We need something that breaks us out of thins range," Weyer said.
 

Mnuchin vs. Powell

Markets were also digesting the disagreement between U.S. Treasury Secretary Steven Mnuchin and Federal Reserve Chair Jerome Powell.

Mnuchin wrote to the Fed on Thursday, asking to return "the unused funds to the Treasury." This means that the key pandemic lending programs that the Federal Reserve uses to support businesses, nonprofits and local governments would expire on Dec. 31. In response, the Fed issued a statement, saying that the "full suite" of measures needs to be maintained.

This could potentially hurt the equity markets in the short-term, said Hug.

"You've got Powell saying they are doing as much as they can and the economy needs fiscal stimulus until the vaccine can do its job. Now, you've got Mnuchin coming out and wanting the money back. It appears that the Trump administration is putting as many roadblocks as possible into Biden's way," he said. "This makes markets nervous. The first crack is going to be the equity market and then, depending on the extent of that crack, the short-term effect could be negative for gold."
 

Data to watch

Despite being a short week due to the holidays, the U.S. will see a slate of data, including FOMC meeting minutes from the November meeting and the updated Q3 GDP data on Wednesday.

Other important figures to keep an eye on are the CB consumer confidence on Tuesday, as well as jobless claims, PCE price index, and durable goods orders on Wednesday.

Also, markets will be tracking the Black Friday sales figures to gauge consumer spending during the raging pandemic.

 

By Anna Golubova

For Kitco News

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Sentiment is mixed leading into the EU session

Gold and silver are once again under pressure leading into the EU session. In the yellow metal, the stubborn consolidation low of $1848.84 is still holding but it seems vulnerable to a downside break. Silver also has a support level at a technical trend line but also the $24 psychological level is holding up the price this morning.

Late yesterday and overnight much of the talk has been over the feud between the US treasury and the Federal Reserve. US treasury secretary Mnuchin asked Jerome Powell to return funding for several Fed lending programs that rely on Treasury’s backing. Within minutes Powell and Co. issued their own statement urging that “the full suite” of facilities be kept in place. Recently the Fed has been asking Capitol Hill for help in supporting the economy but for one reason or another, the fiscal support just has not come.

In the backdrop of rising US COVID-19 cases and deaths, Pfizer is expected to file FDA application for coronavirus vaccine on Friday. Elsewhere, the World Health Organization has recommended against using Gilead Sciences’s remdesivir to treat hospitalized patients. There has been a positive coronavirus story overnight as UK heath secretary Hancock said there are encouraging signs that virus cases are starting to flatten in the UK.

Sticking with the UK and we are getting closer and closer to the Brexit deadline with no real resolution. All the talk of contingency plans has dampened the mood in the sterling rally. There are bound to be more Brexit headlines in the session as EU ambassadors are set to be briefed on latest Brexit updates this morning.

The sentiment leading into the EU open is mixed the Nikkei 225 (-0.42%) and ASX (-0.12%) both closed lower but the Shanghai Composite had a decent session closing 0.44% in the black. Base metals are mostly higher with only tin remaining under flat. Lead, platinum, copper and zinc are all treading above 1% higher in early trade.

Looking ahead to the rest of the session highlight include Canadian retail sales and comments from ECB President Lagarde, FOMC Member Kaplan and German Buba President Weidmann.
 

By Rajan Dhall

For Kitco News
 

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Gold price ‘death cross’ – sharp drop signals are flashing warns Gary Wagner

The 100-day and 50-day moving averages for gold have just crossed following months of a consistent differential, and this pattern is indicative of a "sharp drop" down in the gold price, said Gary Wagner, editor of the GoldForecast.com.

“When the short term [average] moves below a longer term chart, it forms an X just like the Skull and Bones,” Wagner said. “Towards December of last year into January of this year, we had an inversion, an inversion meaning that we had the longer term moving average above the shorter term.”

The cross signals a sharp drop in pricing.

Wagner said that the next support level is at $1,845 an ounce.

“The major reason we’re seeing weakness in gold recently is that traders have been anticipating an additional fiscal stimulus bill to be passed by Congress, Senate, and the Administration. Of course, that hasn’t happened, and that has what has pushed pressure on gold.”

 

By David Lin

For Kitco News

 

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Gold fund manager 'fully invested'; inflation, geopolitical risks to remain

The gold market is experiencing a crosswind of economic forces, but the main tailwinds of inflation and geopolitical risks are still intact, said Sean Fieler, CIO of Equinox Partners.

“I don’t think the Republicans are going to be aggressively in the business of cutting spending, they weren’t under the Trump Administration, I think it’s going to be hard to position themselves that way in a Biden Administration. On the other reason they would put through tax increases. With the Fed monetizing the deficits no matter how large they are, why Republicans would go along with tax increases, is difficult to fathom for me,” he said.

Geopolitical risks are expected to remain high during a Biden Administration, Fieler said.

“I think we’ll see that a Biden Administration will be significantly more hawkish than what we saw from the Trump Administration,” he said.

On inflation, the Federal Reserve’s underestimating rising prices is a mistake, Fieler said.

“They’re just not that concerned about inflation and they are very concerned about unemployment,” he said.

 

By David Lin

For Kitco News

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Miners are taking advantage of higher gold price, more projects kicking off in Q4 – Metso Outotec

Mining companies are taking advantage of higher gold prices this year, especially when it comes to silver and gold projects, according to Metso Outotec.

More new projects are starting to take off in Q4, Metso Outotec's President of North and Central America Giuseppe Campanelli and VP of metals sales for North and Central America Tim Robinson told Kitco News.

"Our customers, especially on the gold and silver side, are looking to ramp up as fast as they can. They want to take advantage of the fact that gold prices are high. Maybe smaller projects are faster to execute and get into operation. That seems to be a little bit of a trend," Campanelli said.

Throughout the COVID-19 crisis, miners have managed to maintain production level while following through on new social distancing measures.

"Our customers are doing a fantastic job of managing COVID as best they can, maintaining production levels, trying to ensure that their operations are ongoing by social distancing, and securing their supply chain," Campanelli said. "They're turning profit and I think we have a very strong role to play to help them."

The coronavirus crisis has created a lot of uncertainty globally, Campanelli stated, adding that precious metals prices have benefited greatly from that uncertainty.

"Gold is a hedge against uncertainty. So gold prices skyrocketed, silver prices as well. The precious metals are benefiting from that quite heavily," he said. "But we're also seeing lofty commodity prices for base metals. Copper prices are fairly strong as well as iron ore. This is great for our customers and we have been supporting them as they ramp up production to take advantage of the spike. There are many interesting projects on the go at the moment."

Initially, COVID has triggered a delay in financing but the actual work has never stopped, Robinson highlighted.

"COVID did affect some of the gold projects with regards to financing, where the banks couldn't visit the sites however, this did not stop the preparation work for these projects," he said. "It did delay projects being executed this year but we are seeing some movement in Q4 and that's all really positive and bodes well for 2021.

Social distancing and remote monitoring

Social distancing was one new major change that needed to be introduced at mine sites this year, which has successfully been implemented, Campanelli said.

"Our customers are limiting heavily who can go to site. They're trying to social distance and run their operations," he noted. "That changed significantly how we interact with our customer. We've moved through virtual communication. There's only so much you can do virtually. They still have a need for our services and people are going there to help them, but it's limited and on the need-to-go basis."

Digital solutions and remote monitoring have become very popular this year, helping the mining industry deal with the current coronavirus situation, Campanelli pointed out.

"We've been further developing our virtual communication channels to perform remote inspections and support them remotely. We have remote monitoring centers that we call Performance Centers, in Santiago, Chile and Changsha, China," he said.

This was already a trend already pre-COVID, Campanelli added. "It's becoming increasingly difficult for our customers to operate their sites. As ore grades decline, mines are more remote and are deeper in the ground … Our equipment is digitalized meaning, we can extract information on equipment and process performance."

The data received is then used to project what's going to happen next and advise what adjustments could be made.

Outlook on mining

The outlook for the mining industry remains positive going forward, especially when it comes to gold and precious metals throughout North and Central America, Robinson added.

"We're quite busy with the initial phases of projects, in particular, gold projects. In terms of that, they haven't stopped, they're preparing for execution. That's really positive," he described.

On the base-metal side of things, there were more delays this year because base metals projects have larger scale and larger capital because of the tonnage that goes through the plant, Robinson pointed out.

"It's a little bit different on the base metals side," he said. "The capital that's required for some of the larger base metals projects is more significant than gold. The difference between this year and the years before is that we've seen good prices on gold and good prices on copper and everybody's excited about that, but it's delayed decision-making."

Going forward, gold does not need to maintain its new highs in order for most of the projects to make money, Robinson said. "Gold projects haven't been based on $1,900 per ounce gold. They've been justified on earlier prices. We are confident on these projects being executed net year," he noted.

There is also a lot of innovation happening in the mining space. Robinson highlighted energy comminution technology, tailings management, EV battery material processing technology, sustainable metals recycling and BIOX technologies.

"BIOX technologies, for example, is biological leaching of refractory oars. It's been around for some time, but not necessarily in this region. We've got operations using this technology in Africa, in Australia, and in central Asia. But there's a lot of interest in the technology in North America," Robinson said.

Merger news

According to its website: "Metso Outotec is a frontrunner in sustainable technologies, end-to-end solutions and services for the minerals processing, aggregates, metals refining and recycling industries globally."

This summer, Metso and Outotec completed their merger, which has created "a truly end-to-end portfolio of solutions covering a more significant part of the customer's flow sheet," said Campanelli.

The merger has also allowed Metso Outotec to take on more complex challenges and more risks.

"Now, we have the ability to deliver a much larger scope. We can be more responsible for what's being fed into the equipment and how it's processed later on," Campanelli described. "From the services side … we take on more of the responsibility and really help our customers optimize their plants, optimize their downtime, and the reliability of their equipment."

 

By Anna Golubova

For Kitco News

 

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A 'sober' 2021 gold price target; say goodbye to 'phenomenal' drivers – HSBC's Jim Steel

2020 has seen a “phenomenal” inflow of gold-backed exchange-traded funds, fueling an investment-led rally, but while ETF inflows are still expected to be strong, 2020’s level of inflows would be hard to keep up.

Jim Steel, chief precious metals analyst at HSBC, said that gold will average a price of $1,965 an ounce in 2021, owing to competing macroeconomic forces; accommodative monetary policy will continue to provide tailwinds, but an unwinding of geopolitical risk from a Biden Administration will ease the appetite for gold.

“Gold is sensitive to geopolitical risk,” he said. “If we’re going to get some rapprochement on the trade issues between the United States and the other countries, and it’s not just one country, it could be from several, and we also get a charm offensive from the Biden Administration to U.S. allies or to others, and the geopolitical risks come down and there’s progress made on the trade front, then that would be negative for gold.”

Steel stressed that the forecast of $1,965 an ounce is an average price target, not a year-end target.

“We’re looking for strength in the more early part of the year and maybe more moderation in the second part, but don’t forget that’s an average, which means that the market will likely spend time about $2,000 for some time, and some time under $1,900,” he said.

The gold market’s rally this year has benefited from the global phenomenon of monetary stimulus and low interest rates.

“Most gold rallies are supported by two features: debt and liquidity and some varying degrees of one, the other, or both. Right now, the gold market is the beneficiary, and has been for quite some time, of both debt and liquidity, and by that I mean we’ve had highly accommodative monetary policies going on for a very long time,” Steel said.

Importantly, low interest rates raises the attractiveness of gold as an asset as it reduces the opportunity cost of holding it, Steel noted.

Seasonality is less important of a factor for the gold price as it used to be, Steel said.

“We used to get movements near Diwali, the Festival of Light in India, and also the Chinese New Year, and you do get some stocking up beforehand, but it’s not nearly as influential as it used to be,” he said.
 

By David Lin

For Kitco News

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These industries to skyrocket in growth from ‘boost in new policies’

The future lies in clean energy and clean transportation, and technology companies surrounding those themes will benefit investors, said Howard Marks, CEO of StartEngine, an equity crowdfunding platform.

“Entrepreneurship is still a very good area for investment, anything to do with technology. I think green technology, which includes solar energy, renewable energy, electric cars, are going to take a big boost from the new policies of the Administration,” Marks said.

While the pandemic has harmed the small-business landscape of the economy, large tech companies have been propelled by the work from home culture.

“The pandemic, in many ways, has accelerated the future, and that acceleration was shown in those stocks, and those of course are the big, large-cap technology stocks,” Marks said.

There has been a record number of new business applications in the U.S., according to data from the U.S. Census Bureau.

“I think a lot of people lost their jobs in the beginning in the pandemic. I think there was a trend to lay off a lot of people, especially from big business, and also from small companies like restaurants. This generated an opportunity for people who are at home to say, should I pursue my dreams today,” Marks said.

Raising capital remains the primary challenge for entrepreneurs.

“Until the Jobs Act, which came out in 2012, entrepreneurs went to venture capitalists, angels, wealthy investors to receive capital, and sometimes friends and family…that was the status quo. With the Jobs Act [came] a new idea of equity crowdfunding where you can actually raise capital directly from a platform like StartEngine, and that is a brand new way, an alternative way to raise capital,” he said.

Marks noted that some of some of the most popular startups today are food and beverages, such as distilleries and breweries, followed by green technology, artificial intelligence, and fintech.

 

By David Lin

For Kitco News

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