Gold/Silver Ratio Will Narrow, But Base Metals Ultra Gloomy - UBS

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Gold is expected to remain under pressure in 2009 as a result of slowing jewellery demand in important emerging markets and a continued strengthening in the dollar, while silver forecasts have been sharply reduced.

Investment bank UBS has published its latest economic and commodity forecasts, cutting the prognosis for global GDP growth to 1.3% from 2.2% while suggesting that there are still downside risks to the economic outlook as a result of the speed and magnitude of the deterioration in demand. The bank's forecasts for commodity prices have been cut "deeply" for 2009 and 2010, in the expectation that the contraction in credit and finance is unlikely to be reversed in the near term, and that its impact on the real economy will continue over the next two years.

Key benchmark commodities oil and copper are forecast to average US$60/bbl and US$1.30/lb in 2009. This compares with averages of $72.4/bbl in 2007 and $109.7/bbl in 2008 year-to-date for oil and of $3.35/lb and $3.47/lb for copper. UBS also expects that iron ore will face a 40% price decline for next year's contracts. With the exclusion of precious metals the bank has cut its commodities estimates by an average of 37% and its latest forecasts for the average prices in 2009 are below the market consensus; in the majority of cases the forecasts for the 2009 average lie at levels below those currently prevailing. The largest downward adjustments are in the case of uranium and copper, closely followed by nickel, zinc and oil...

Platinum is one of the commodities that fares the best, and while the outlook for the auto industry may keep pressure on the metal in the medium term, the collapse of the platinum-gold premium bodes well for a recovery in the jewellery sector when confidence returns...

Gold is expected to remain under pressure in 2009 as a result of slowing jewellery demand in important emerging markets and a continued strengthening in the dollar, while silver forecasts have been sharply reduced.

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