21 December 2010, 9:29 a.m.
By Allen Sykora
Kitco News
(Kitco News) – MF Global looks for gold prices to be in a range of $1,250 to $1,550 an ounce in 2011, with a year-end objective of $1,450.
MF Global sees silver in a range of $25 to $35, with a year-end objective of $30, according to a precious-metals outlook issued Tuesday by analyst Tom Pawlicki. “Palladium should outperform platinum again, and finish near $1,000/oz as global auto demand firms,” he said.
Generally, Pawlicki looks for gold prices to advance in the first half of the year on many of the same factors that have been underpinning them. For starters, central banks have been marginal net buyers for several quarters now, with China and Russia among those likely to still be adding gold, MF Global says.
A second round of U.S. quantitative easing, dubbed QE2, continues until the end of the second quarter, which should help keep prices elevated, MF Global said.
“Fed Chairman (Ben) Bernanke has discussed the possibility of a QE3 program being implemented, so metals prices may remain buoyed until receiving more clarity on that issue,” Pawlicki wrote. “In Europe, excessive spending has led to the sovereign-debt problems that have caused the euro to fall and investment to migrate to safe havens.
Metals should continue to receive support from the uncertainty that remains regarding the health of the single currency and the possibility of default by one of its members.”
MF Global also cites Chinese investment into gold amid concerns over inflation in the country.
MF Global said there are no “eureka-moment” factors capable of de-railing the metals markets at the moment, but cautions that some might be developing, including excess bullishness the same way that excess bearishness existed when the market put in a bottom a decade ago.
“In the same way that the bottom in prices was formed in 2001 when players became too short, we need to be aware now that the opposite conditions are in place,” MF Global said. “In 2001, prices were rounding out a five-year selloff because central banks were selling, miners were hedging, and investors were fleeing. At the moment, central banks have just turned net buyers, miners unwound almost all of their hedges, and investors are flocking to the metals markets for lack of a better alternative.”
Meanwhile, quantitative easing could end up a “double-edged sword” for gold, MF Global said. Hopes for QE3 among some may be supportive. However, there also may be limited political support for such a measure. “The Tea Party may have an influence here, with Ron Paul heading the Banking Committee,” MF Global said. And while hawkish and frequently dissenting Fed member Thomas Hoenig won’t be a voting member in 2011, Richard Fisher and Charles Plosser will be, and they have been vocal opponents of QE as well, MF Global pointed out.
Still other factors that could eventually limit the upside for precious metals would be upward movement in interest rates and potential interaction with other markets, such as any strength in the dollar.
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