RENO, NV -
BMO Capital Markets suggests the bear case could see the gold price retreating to US$750/oz in 2010 while the bull case hints the price could reach US$1,300/oz in 2011.
In a recently published report, BMO analysts David Haughton, Andrew Breichmanas and Bart Melek advised silver could outperform in a bull case gold scenario perhaps reaching $22.03 next year. In a bear case, silver could be as low as $11.45/oz in 2010.
While the analysts expressed concern disinflation and a firm dollar could keep gold range-bound well into 2010, they advise, “The metal will likely be energized again late in 2010 amid a weakening greenback and rising inflation concerns, as the U.S. economic recovery takes root and as post-recession growth becomes entrenched. At that time, risk taking should accelerate and with it BMO Research expects a weaker dollar as capital increasingly moves away from the safety of the treasury market.”
Longer-term, the analysts anticipate gold’s seven-year run will continue well in 2011. “Gold should also benefit from a weaker dollar over the long term.”
“Another factor expected to help prices is physical demand from consumers in developing economies as disposable incomes increase, fuelling gold prices as a store of value and status symbol,” they suggested.
BMO asserts that central banks “could be a very positive force for gold” as they “will likely put more gold in their reserves to protect against inflation and the depreciation of the U.S. dollar. The speedier the inflation, the stronger the motivation to place gold into reserves.”
“Even more importantly, China has been acquiring gold in its official reserve,” the analysts noted. “The fact China has boosted its gold reserves is very material for the precious metal and currency markets. This may mute any possible correction, as there is likely a large buyer waiting in the wings.”
However, if a bear case resulted in a combination of poor physical demand from investors and consumers, BMO suggests it “would likely drive gold producers to high grade. This, along with low energy costs and the costs of other inputs, would depress the marginal cost of production, lowering long-term prices far below the current BMO Research estimate of $750/0z. Prices for by-product metals would also be quite low as the sector functions below capacity for protracted periods.
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