RBC Dominion Securities Inc. said on Friday it cut its outlook for the year for the price of gold and the companies who produce it, citing a price reverse for the yellow metal this week that was the worst since 1999.
Gold prices fell to $1,361 (U.S.) an ounce this week – their lowest level in two years – as investor confidence fell out of the market on the back a combination of bearish signals, from fears that European central banks might sell gold to sharp downgrades in price forecasts by Société Générale de Belgique SA and Goldman Sachs Group Inc.
The tumble hit the share prices of gold producers hard, raising fears that costs of production were in danger of overtaking profits.
“In this gold price environment, we expect all gold producers to focus on reducing operating costs and cutting non-essential capital spending, building shareholder confidence in company business models,” analyst Stephen Walker, the bank’s head of global mining research, wrote in a report.
RBC said on Friday it pulled back its gold price forecast for the year to $1,450 an ounce from $1,700 an ounce previous. It cut its forecast for silver prices to $25.50 an ounce from $35 per ounce. It said it cut its target prices on North American gold producers by 30 per cent, and by 26 per cent on the top producers.
“Whilst there may have been a concerted effort to short the metal, in our view this was only successful due to a fundamental lack of conviction behind gold in any of its key markets, including Asia, the principal source of physical demand,” RBC analyst Jonathan Guy said in a note posted overnight out of London.
“On the other hand, in our view the longer term fundamentals remain positive, given the elevated levels of global monetary easing, euro zone financial uncertainty and elevated levels of geopolitical risk in North Korea and the Middle East,” Mr. Walker wrote in a separate note.
Gold climbed back above $1,400 on Friday – to $1,410 per ounce, still several times the lows of July 1999 of $252 per ounce. It started to climb in the ensuing years, gaining momentum through the mid 2000s and hitting records of over $1,900 an ounce in September 2011.
A number of gold bulls say the metal will resume its upward trajectory in coming years.