Outlook for precious metals remains bright

The outlook for base metals looks lacklustre but for bullion it remains bright, according to the Global Commodity Research team at Bank of America Merrill Lynch (BofAML).

The group held to its forecast that the price of gold will rise above $1,500 (Dh5,510) an ounce in the medium term. This follows new estimates that even a $1 trillion bailout package for Greece may not be enough.

The investment bank said that the price of aluminium will average $2,275 a tonne and that of copper $7,275 a tonne this year. Lead, nickel and zinc will average $2,300 a tonne, $20,950 a tonne and $2,325 a tonne, respectively, the BofAML analysts said. The precious metals had a better outlook. While gold is expected to average $1,100 an ounce this year, silver is expected to average $17.6 an ounce. Platinum and palladium are expected to average $1,750 an ounce and $500 an ounce, respectively. In 2011, the estimated price of aluminium ($2,100) and nickel ($20,000) are expected to fall as compared to 2010, analysts said. On the other hand, all the precious metals – gold, silver, platinum and palladium – are expected to be more costly next year, BofAML data showed.

"Price movements of industrial metals and gold have diverged during the past few weeks. As the sovereign debt crisis in Europe unfolded, gold denominated in a host of currencies hit a series of record highs. Meanwhile, despite continued healthy data from the global manufacturing sector, industrial metals declined partially because of concerns over the strength of the economic recovery on bearish news flow from Europe and Greece," BofAML analysts said.

On the other hand, analysts at global commodities advisor MF Global said that though they have saw a short-term upswing in prices, the trend was reversed by intermittent flow of bad news from Europe.

Considering the uncertainty over China and Europe, BofAML was cautious on the base metals in the upcoming third quarter and pointed out that prices could fall further from where they stand.

"Market participants will, in our view, focus on a set of data points in the coming weeks, including the following: the extent to which tightening in China slows the economy, concrete announcements of measures by euro zone governments that structural issues will be tackled and signs that the problems in Europe do not spread further," BofAML said.

While BofAML forecast a surplus this year for base metals, it said there will be a deficit of platinum and that would help prop up its price.

The movement of currencies will be critical for determining the price of metals, the BofAML analysts said.