Friday was a "difficult day" for Comex gold as overseas selling and asset-allocation flows pressured the market, until the U.S. employment report encouraged some traders to buy in order to cover short positions in which they previously sold, says George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures. "With a stronger dollar against euro recently due to worries about Greece and other euro-zone countries and uptick in rates, and rebalancing of portfolios after last week's high metals prices, the contracts remained on the defensive," Gero says. During the first week of the quarter and of the year, many portfolio managers sell assets in which they might have "overweight" positions, Gero says. Shortly after the Comex pit close, February gold was down $2.70 to $1,369 an ounce, although well up from the low of $1,352.70.
Market Nuggets: BNP: 2011 Too Soon For Zinc To Catch Up With Other Base Metals
The zinc market may remain in surplus in 2011 and may not be ready to catch up with other base metals after underperforming last year, says a research note from BNP Paribas. Zinc was the only of the six LME base metals to post a loss in 2010, and BNP estimates the global surplus at 900 metric tons last year. Some mines will close in the 2012-14 period, BNP says. Zinc demand grew 15% last year, but the pace is expected to slow to 6% this year and next. World mine production is expected to rise 7% over 2011-12, while growth in refined output may be slower at 4.5%. "It seems clear to us that the zinc market will remain in structural surplus in 2011. Even in 2012, we do not foresee the zinc market moving into deficit. And although deficit is likely from 2013 onwards, it will take quite some time to erode excess inventory that may in the interim have escalated even beyond today's elevated levels," says the BNP report from analyst Stephen Briggs. "We conclude not only that zinc's underperformance in 2010 was fundamentally justified, but also that 2011 is too soon for it to start catching up with the leaders of the base metals pack."
Barclays: Lead, Aluminum, Zinc To Benefit Slightly From Index Rebalancing
Analysts with Barclays Capital estimate that lead, aluminum and zinc will experience net buying related to rebalancing in the S&P GSCI and DJ-UBS indexes that happens between Friday and Jan. 13. Copper and nickel will see net selling. Overall, the quantities are "insignificant relative to overall market size," Barclays says. "As a proportion of total open interest, buying will be equivalent to around 0.1%, 0.3% and 1.7% of the lead, aluminum and zinc markets; while selling will account for just 1.4% in both nickel and copper."
Van Eck's Foster: Same Factors That Supported Gold In 2010 Still At Play In 2011
Joe Foster, the portfolio manager for the Van Eck International Investors Gold Fund and strategist with Market Vectors Gold Miners exchange-traded fund, figures the same factors that supported gold during 2010 should mean more strength in 2011. "Europe hasn't solved the sovereign-debt problems," he says. U.S. central bankers are continuing with quantitative easing, often thought of as printing money. U.S. debt is also rising and the housing market is a "mess," Foster says. "The economy is still in poor shape. India and China are dealing with inflationary forces. These things will continue to drive the market in 2011. So I think we'll trend to new highs as we move through the year."
Barclays Technicians: Silver Consolidation Has Not Dampened Bullish Outlook
Technical-chart analysts with Barclays Capital say the recent consolidation in silver has not dampened ther bullish view. Referring to silver in dollar terms, they write in a research note: "Daily momentum studies have unwound from overbought levels and now offer opportunity for further gains. We expect buying interest above 28 to underpin a rally through Monday's 31.26 high and target a Fibonacci projection at 33.20." The bank says a seasonality chart for silver also suggests January as a likely month for an advance. "The historical median gain suggests that we could well close the month in the 31.35 area, while the historical mean average gain calls for a rally extension to close the month in the 32 area."
HSBC Looks For Average 2011 Gold Price Of $1,450/Oz; $26 For Silver
HSBC this week hiked its average 2011 gold-price forecast to $1,450 an ounce from $1,425. "We believe that gold will continue to attract safe-haven buying from risk-averse investors this year, as European Union sovereign debt concerns persist," says a report from analyst James Steel. HSBC also cites continued U.S. quantitative easing and economic activity in emerging nations that may reignite inflation fears. HSBC looks for gold-mine output to rise since prices are well above the marginal cost of production, yet says increases will be hampered by declining ore grades, power constraints and labor shortages. Steel also cites expected net buying from the official sector. The bank upped its 2011 average silver forecast to $26 from $20. "Although we expect silver to remain a beneficiary of safe-haven investor buying and strong industrial demand, notably from the electronics sector, prices may ease from current high levels," the bank says. "Prices far above the marginal costs of production are encouraging primary mine output, while silver by-product is increasing with greater base metals production." High prices may encourage a substantial increase in recyclable material, the bank adds.
HSBC Sees Platinum Average Of $1,750/Oz in 2011, $750 For Palladium
HSBC is maintaining its platinum-price outlook at an average of $1,750 an ounce in 2011 and upping its palladium outlook to $750 from $675. "A continued recovery in global automobile production will support both platinum and palladium prices, but should favor palladium, in our view. This is because much of the growth in world auto production will come from China and other parts of the emerging world and the U.S., where palladium-rich gasoline-fired vehicles are preferred to diesel-fired vehicles, which have a heavier platinum weighting," says a report from analyst James Steel, winner of an LBMA 2010 price-forecast competition in platinum. High prices in China are hurting jewelry demand, but ETF demand for both metals is likely to remain firm in 2011, he says. South African platinum supply increases will be limited by a lack of power, available water, technical expertise and a strong rand, he says. Much palladium is a by-product of Russian nickel and South African platinum production, thus limited supply prospects for increases in these metals will limit palladium output. "Palladium also stands to benefit from growing concerns that Russian state-owned stockpiles may be depleted," HSBC adds.
Market Nuggets: BNP: 2011 Too Soon For Zinc To Catch Up With Other Base Metals
The zinc market may remain in surplus in 2011 and may not be ready to catch up with other base metals after underperforming last year, says a research note from BNP Paribas. Zinc was the only of the six LME base metals to post a loss in 2010, and BNP estimates the global surplus at 900 metric tons last year. Some mines will close in the 2012-14 period, BNP says. Zinc demand grew 15% last year, but the pace is expected to slow to 6% this year and next. World mine production is expected to rise 7% over 2011-12, while growth in refined output may be slower at 4.5%. "It seems clear to us that the zinc market will remain in structural surplus in 2011. Even in 2012, we do not foresee the zinc market moving into deficit. And although deficit is likely from 2013 onwards, it will take quite some time to erode excess inventory that may in the interim have escalated even beyond today's elevated levels," says the BNP report from analyst Stephen Briggs. "We conclude not only that zinc's underperformance in 2010 was fundamentally justified, but also that 2011 is too soon for it to start catching up with the leaders of the base metals pack."
Barclays: Lead, Aluminum, Zinc To Benefit Slightly From Index Rebalancing
Analysts with Barclays Capital estimate that lead, aluminum and zinc will experience net buying related to rebalancing in the S&P GSCI and DJ-UBS indexes that happens between Friday and Jan. 13. Copper and nickel will see net selling. Overall, the quantities are "insignificant relative to overall market size," Barclays says. "As a proportion of total open interest, buying will be equivalent to around 0.1%, 0.3% and 1.7% of the lead, aluminum and zinc markets; while selling will account for just 1.4% in both nickel and copper."
Van Eck's Foster: Same Factors That Supported Gold In 2010 Still At Play In 2011
Joe Foster, the portfolio manager for the Van Eck International Investors Gold Fund and strategist with Market Vectors Gold Miners exchange-traded fund, figures the same factors that supported gold during 2010 should mean more strength in 2011. "Europe hasn't solved the sovereign-debt problems," he says. U.S. central bankers are continuing with quantitative easing, often thought of as printing money. U.S. debt is also rising and the housing market is a "mess," Foster says. "The economy is still in poor shape. India and China are dealing with inflationary forces. These things will continue to drive the market in 2011. So I think we'll trend to new highs as we move through the year."
Barclays Technicians: Silver Consolidation Has Not Dampened Bullish Outlook
Technical-chart analysts with Barclays Capital say the recent consolidation in silver has not dampened ther bullish view. Referring to silver in dollar terms, they write in a research note: "Daily momentum studies have unwound from overbought levels and now offer opportunity for further gains. We expect buying interest above 28 to underpin a rally through Monday's 31.26 high and target a Fibonacci projection at 33.20." The bank says a seasonality chart for silver also suggests January as a likely month for an advance. "The historical median gain suggests that we could well close the month in the 31.35 area, while the historical mean average gain calls for a rally extension to close the month in the 32 area."
HSBC Looks For Average 2011 Gold Price Of $1,450/Oz; $26 For Silver
HSBC this week hiked its average 2011 gold-price forecast to $1,450 an ounce from $1,425. "We believe that gold will continue to attract safe-haven buying from risk-averse investors this year, as European Union sovereign debt concerns persist," says a report from analyst James Steel. HSBC also cites continued U.S. quantitative easing and economic activity in emerging nations that may reignite inflation fears. HSBC looks for gold-mine output to rise since prices are well above the marginal cost of production, yet says increases will be hampered by declining ore grades, power constraints and labor shortages. Steel also cites expected net buying from the official sector. The bank upped its 2011 average silver forecast to $26 from $20. "Although we expect silver to remain a beneficiary of safe-haven investor buying and strong industrial demand, notably from the electronics sector, prices may ease from current high levels," the bank says. "Prices far above the marginal costs of production are encouraging primary mine output, while silver by-product is increasing with greater base metals production." High prices may encourage a substantial increase in recyclable material, the bank adds.
HSBC Sees Platinum Average Of $1,750/Oz in 2011, $750 For Palladium
HSBC is maintaining its platinum-price outlook at an average of $1,750 an ounce in 2011 and upping its palladium outlook to $750 from $675. "A continued recovery in global automobile production will support both platinum and palladium prices, but should favor palladium, in our view. This is because much of the growth in world auto production will come from China and other parts of the emerging world and the U.S., where palladium-rich gasoline-fired vehicles are preferred to diesel-fired vehicles, which have a heavier platinum weighting," says a report from analyst James Steel, winner of an LBMA 2010 price-forecast competition in platinum. High prices in China are hurting jewelry demand, but ETF demand for both metals is likely to remain firm in 2011, he says. South African platinum supply increases will be limited by a lack of power, available water, technical expertise and a strong rand, he says. Much palladium is a by-product of Russian nickel and South African platinum production, thus limited supply prospects for increases in these metals will limit palladium output. "Palladium also stands to benefit from growing concerns that Russian state-owned stockpiles may be depleted," HSBC adds.
