Capital Economics, Barclays trim gold & silver forecasts

In the aftermath of a strong U.S. employment report Friday, two financial bodies lowered their forecasts for the precious metals sector.

Analysts from Capital Economics said in their recent research note they slashed forecasts for gold and silver, and the reason for this change is mainly due to the fact that a December interest-rate hike in the U.S. now seems more possible after the jobs report. The body, however, is still optimistic towards the next year.

"A fall to $1,050 by end-2015 would be consistent with a further rise in two-year Treasury yields to 1% and some additional strength in the U.S. dollar against other major currencies," they say referring to gold prices.

For silver, Capital Economics said that they see the white metal edging down to $14.50 an ounce by year-end, but moving to around $20 in 2016. For gold in particular, the analysts noted that "whether U.S. interest rates end next year at zero or 2% will make very little difference to the demand for gold from key emerging markets, which should still pick up again." They add that they expect gold prices to be near $1,400 an ounce by end-2016.

Analysts at Barclays have slashed their forecast for gold prices in the fourth quarter after the bank lowered its view on when the U.S. Federal Reserve will start hiking U.S. interest rates.

"We have revised down our gold price forecast for Q4 15 to $1,100/oz and the average price for 2016 to $1,054/oz from $1,170 and $1,215, respectively, partially reflecting a move in our Fed rate hike call from March 2016 to December 2015," the bank said.

Barclays released the report on a day when the U.S. Labor Department reported that October nonfarm payrolls rose by 271,000. The analysts pointed out that during previous Fed hiking cycles, the yellow metal tended to be higher six months after the hiking was launched. However, they don't expect this to happen this time again.

"We found almost all factors we studied will work against gold in the forthcoming hiking cycle. Real rates are set to rise; USD (dollar) is forecast to continue its bull run; inflation expectations are at risk of shifting downwards rather than up; and equity markets show limited upside after a multi-year rally."

The noted that holders of Exchange-traded-funds are now possible sellers rather than buyers, and sentiment towards commodities is at a multi-year lows.