BMO Capital increases gold and silver forecasts, sees rally in the final months of 2024
Wed June 26 2024
The gold market may lack a bullish catalyst to drive prices higher, but according to one bank, the precious metal is building a solid floor of support.
Commodity analysts at BMO Capital Markets updated their precious metals price forecast ahead of the third quarter, increasing their bullish outlook for gold and silver.
The analysts have raised their price forecasts by 5% across the board, as they don’t expect the price to drop below $2,000 an ounce in the next four years. BMO left its long-term forecast unchanged at $1,650 an ounce.
In the nearer term, the Canadian bank sees gold prices averaging around $2,263 an ounce this year, up 4% from their previous average estimate of $2,168.
Looking to 2025, BMO sees gold prices averaging around $2,200 an ounce, up 5% from the previous estimate of $2,100 an ounce.
Although gold is expected to remain fairly range-bound through the third quarter, BMO is looking for higher prices by year-end, with an average Q4 estimate of $2,350 an ounce.
The analysts said that central bank gold demand continues to transform the precious metal investment landscape and is a key factor for why it has largely ignored higher interest rates due to the Federal Reserve’s aggressive monetary policy.
“Perhaps the most important element of this is that the incremental gold buyer has moved from a price-sensitive consumer to an AUM-sensitive asset allocator, to a mandate-driven central bank,” the analysts said. “This shift has, in our view, been a key reason in gold trading at a consistent premium to the cost curve over the past few years. Moreover, China’s push to de-dollarize trade is pulling gold back into the global monetary system, something we view as a secular trend over the next decade.”
While China is expected to remain a dominant player in the gold market, BMO noted that last week’s central bank survey published by the World Gold Council shows a growing lineup of emerging market central banks looking to increase their gold reserves.
“EDME central banks, in particular, expressed continuing concerns about the impact of geopolitics and potential financial instability on their reserve management decisions, with more central banks expressing less confidence in the U.S. dollar’s sustained supremacy,” the analysts said. “In our view, we expect emerging markets to dominate central bank purchases and investment demand, as the push to de-dollarize continues.”
But it’s not just gold that BMO is bullish on, as the analysts increased their silver price forecasts.
BMO looks for silver prices to average $27.30 an ounce this year, up 7% from its initial forecast of $25.60 an ounce. Looking further out, the bank sees silver prices averaging $26.30 an ounce next year, up 4% from the initial forecast, and for 2026, their average silver price is around $25.30 an ounce, up 5% from the previous estimate. Prices are expected to remain around $25 an ounce in 2027 and 2028, up 6% and 2%, respectively.
Similar to gold, BMO sees relatively stable silver prices through the third quarter, with activity picking up in the final months of the year. The analysts said they see silver prices averaging around $28.50 an ounce in the fourth quarter, up 2% from the previous forecast.
The bank’s long-term silver forecast was increased to $22 an ounce, up 2% from the previous estimate.
Although gold and silver are expected to move in lockstep with each other, BMO said that silver remains at the mercy of the global economy, which will drive industrial demand.
“Silver does offer more torque at points of inflection, partly due to liquidity, and partly due to the different way the market trades. Relative to gold, there is greater potential for meaningful industrial demand growth and, importantly, an energy transition angle through use in photovoltaics and power grids,” the analysts said. “While gold is macroeconomic-led, both through macro asset allocators and central banks, silver still relies more on retail purchases via bars, coins, and ETFs. Thus, the fact that silver has moved more or less with gold points to relative alignment between macro and micro investors.”
“One point of differentiation over the coming years could be industrial demand, with silver likely to benefit from the global capex cycle in renewables and communications, driving marginal outperformance relative to gold for the rest of this decade,” they added.
Source: https://kitco.com/