December 27, 2012

Will Gold Lose Its Luster in 2013? Commodities Outlook

Many banks see a rise in precious-metals prices, but the World Bank disagrees

Investment banks are generally upbeat on their outlook for how commodities, including gold and silver, will fare over the next 12 months. But economists at the World Bank are more sanguine and expect many commodities to fall in price next year.

Morgan Stanley (MS), for instance, lists gold, silver, corn and soybeans as its preferred commodities for 2013. It expects gold to average $1,853 an ounce next year and for silver to average $35.

On Friday, gold for February delivery dropped 0.4% to trade at $1,656.30 on the Comex. For the week ending Dec. 28, gold fell 0.3%, while silver weakened 0.7%.

Gold started the year at around $1,598, giving it a roughly 6% increase year to date, its smallest yearly gain since 2008. (The S&P 500, by comparison, rose roughly 15% in 2012.)

“Higher prices in recent years have brought both a supply and demand response, bringing many to call for the end of the commodity ‘super cycle.’ We view this as too simplistic,” Morgan Stanley’s commodities team said earlier this month.

But Barclays just cut its outlook for gold in 2013, though it still sees the precious metal ahead of current levels at $1,815 an ounce. Its silver forecast has remained steady at $32.50.

Its 2013 forecast for platinum is $1,690 an ounce (vs. $1,617 as of Dec. 14), while it sees palladium trading at $736 an ounce (vs. $704 on Dec. 14).

For its part, Bank of America (BAC) sees gold, copper, silver, platinum and palladium outperforming other commodities in the year ahead as global economic grow averages 3.2%.

“We expect large-scale policy easing by the Fed and the ECB should push gold prices higher,” the BofA analysts explained. They forecast gold to hid $2,000 an ounce in 2013. “A stronger Chinese economy will likely lend support to supply constrained metals next year, and we expect copper prices to average $7,750 a ton in the fourth quarter of 2013.”

UBS said earlier in December that its gold forecast is $1,900 an ounce in 2013, while its silver outlook is pegged at $36.80. Its platinum forecast is $1,740, and its palladium outlook is at $780.

“We remain gold bulls,” UBS said in its report. “Ongoing uncertainty around U.S. fiscal issues, together with the view that major central banks will maintain loose monetary policies for longer, are key supports of our outlook.”

Russell Investments noted in its 2013 outlook that it doesn’t expect the price of gold to double anytime soon. But, as long as the U.S. Federal Reserve remains committed to its zero-rate policy,” it may be some time before there is a formidable headwind for the precious metal. As such, we expect the price of gold to remain firm with modest upside over the next year,” it explained in the report.

Goldman Sachs, however, recently trimmed its gold outlook for 2013, according to several reports. The investment bank says gold’s bullish cycle could reverse itself next year if rising interest rates and growth offset government stimulus programs.

Price Movement

Commodities as tracked by the Standard & Poor’s GSCI Spot Index are down 2% this year on lower prices for coffee, sugar and cotton.

The PowerShares DB Commodity Index Tracking ETF (DBC), though, has improved roughly 2% since Dec. 14, 2011. 

The World Bank, which will issue forecasts in January, had a very bullish outlook on base metals, but a bearish take on precious metals in its latest statistics.

It sees gold prices moving from an estimated average of $1,650 in 2012 to $1,600 in 2013. But copper and nickel, are projected to see significant price rises in the year to come.

Overall, the organization sees the prices of precious metals declining in 2013, while base metals and minerals should see substantial price gains.

As for energy prices, it forecasts a weakening for crude oil and a modest improvement in natural gas.

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Check out AdvisorOne’s complete lineup of Outlooks for 2013.

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