Precious and Base Metals, Oil, in New Orbits

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RBC CM analysts are maintaining a bullish longer-term outlook for gold: "One aspect we believe is not priced into the commodity, nor the gold equities, is increased inflation expectations".

With many commodity and metal prices now in unknown territory, analysts have their work cut out in assessing the outlook in attempts to guide investors into the future. Royal Bank of Canada Capital Markets (RBC CM) anticipates investment and macro fund buying to push gold through the $1,000 an ounce level over the next few months. The analysts warn, however, on the risk that without any follow-on physical demand for gold, particularly out of India, the Far East and the Middle East (which together buy around 70% of annual physical demand for gold), significant physical selling could occur, as was observed in the Spring of 2006, when the gold price spiked to $735 an ounce, and then sold-off to $550 an ounce.

RBC CM says a similar correction could see the gold price retrace back to the mid-$800 an ounce level during the seasonally weaker-demand Northern Hemisphere summer months. On platinum, the analysts say that much of the current "super price environment" is a direct result of mining companies falling well short of previous production promises, then from January, compounded by the South African electricity supply constraint. The analysts believe that jewellery demand for platinum will decline dramatically, allowing the auto-catalyst need to be filled, but causing the platinum price to be maintained at levels of $2,000 an ounce for the next two to three years....

RBC CM analysts are maintaining a bullish longer-term outlook for gold: "One aspect we believe is not priced into the commodity, nor the gold equities, is increased inflation expectations". A scenario of rising inflation in Asia and the Middle East, coupled with continued US dollar weakness in a US Federal Reserve bank rate cutting cycle, leads the analysts to believe in support for $1,000 an ounce gold prices "and maybe significantly higher later this year and into 2009".

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