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CIBC World Markets is turning more bullish on gold and silver and suggests it's nearly time for investors to pounce on the sector to capture a seasonal bounce.
CIBC analysts, including Barry Cooper and Alec Kodatsky, believe that the further quantitative easing measures from the U.S. Federal Reserve is setting the stage for a continuation in the gold rally that subsided in mid-September.
"QE1 and QE2 were the drivers for gold price increases in the order of $20 to $30 (U.S.) per month," the analysts wrote in a research note. "We expect that QE3 will offer something between these figures, although on a percentage basis the moves will not be as significant due to the higher gold price."
QE3, or the third round of quantitative easing, will consist of $40-billion per month of bond purchasing related to mortgage-backed securities. The Fed has not set an expiry date for the program, committed to seeing tangible signs of improvement first in the U.S. economy.
For 2013, CIBC kept its forecasts unchanged, expecting gold will average $2,000 an ounce and silver $35 an ounce.
But it now sees gold rising to an average of $2,200 for 2014 and silver to $38.
"The figures represent our view that prices are underpinned by the rising cost of supply, plus strong demand coming from both investor interest and Central Bank buying," they said.
Gold has so far averaged $1,656 an ounce this year and silver $31.
That's below CIBC's average price forecast of $1,700 and $32.50 for this year, but the analysts believe its forecasts are obtainable considering seasonality trends. November and December represent the first and third strongest months, respectively, for bullion performance, driven by increased jewelry demand ahead of Christmas. It also expects other factors to benefit gold and silver late this year, such as continued bailout concerns surrounding Spain and Greece, and a bounce back in Indian demand after a weak first half of this year.
"We are about to head into the strongest month for gold performance, and indeed in looking at the next four months, investors could capture 56 per cent of the annual gold gains and a whopping 66 per cent of the annual silver gains by holding the metals over the period November to February," they said.
"In contrast to the common belief that September is the strongest month for gold bullion, it is actually November that shapes up better, with December being the third best month for gold price responses over the past 10 years." (See accompanying infographic).
"Only once in the past decade has the month of November been a down month for gold or silver. That occurred in 2008 at the height of the financial crisis, which we do not equate to current conditions."
Also today, HSBC hiked its own forecasts for gold. The bank lowered its average forecast for full-year 2012 to $1,700 an ounce to reflect price weakness earlier this year, according to Kitco News. Its previous forecast had been $1,760.
However, HSBC increased its average forecast for 2013 to $1,850 from $1,775. It also upped its 2014 forecast to $1,775 from $1,750.
Darcy Keith