Wednesday, September 14, 2011

TD Securities increases 2012 gold forecast to $1,975/oz.

Once investors are able to properly price risk, TD Securities Bart Melek says gold should move towards the $2,000/oz. mark "as it remains a great hedge."

Author: Dorothy Kosich


TD Securities Monday upgraded its short and medium-term gold forecasts, citing prices "expected to hit highs of well above $2,000/oz. in the coming months on lower bond yields, expectations of poor risky assets returns and general risk aversion owing to uncertain global economic conditions."

Nevertheless, TD Securities' Bart Melek cautioned, "We can very easily see $1,750/oz. gold in the coming weeks, if uncertainty grows."

"Contrary to normally expected risk-off behavior, where gold rises during periods of risk asset selloffs, the question for cash has taken the yellow metal down some 2% to $1,823/oz. from the session high at the time of writing," he noted. "However, once there is more certainty and investors are able to properly price risk, gold should move towards the $2,000/oz. mark as it remains a great hedge against currency devaluations and inflations."

On Monday TD upgraded the gold forecast to $1,975/oz. in 2012 and $1,750/oz. in 2013, compared to its previous forecast of $1,850/oz. in 2012 and $1,650/oz. in 2013.

However, silver has been hit hard by a risk-off environment, Melek observed, adding "silver was down a much sharper 4.5% on the week."

"Silver dropped double the rate of gold due to the fact it's much more tied to the industrial side of demand," Melek observed. "That demand would no doubt drop sharply, taking the metal into a material oversupply situation, if the western world moved into a recession again."

In his analysis, Melek found platinum and palladium also had a bad week amid demand concerns. "The PGMs seem to have followed the base metals markets lower, particularly copper."

"Copper also had a very bad week as it dropped some 3.3% on the week," he noted. "Economic growth worries and the clear risk-off environment have prompted traders to get rid of copper last week and on Monday, despite the fact that demand seems strong in China as shown by the trade flow data."

"Based on the fundamentals, copper should be up sharply," Melek forecast. "But it will stay under selling pressure so long as slow growth in the US and European sovereign debt problems threaten to send the economy into recession territory."

Melek noted that nickel prices "held the best across the base metals as they have been stuck in a trading range since the early August correction lows and did not see the same price bounce as witnessed in the other base metals."

Despite a minor decline, iron ore continues to hold in at higher prices "as supply concerns continue and China stockpiles the material despite attempts by the government to slow the property construction boom that has been taking place," said Melek. "This could continue to lend support to the iron ore price, however, any slowdown in the global economy and subsequently a slowdown in Chinese growth could take iron ore prices down."