In analysis published Thursday, Melek said, "Silver, platinum and palladium are expected to outperform gold, benefiting from their quasi-money properties and high use in industrial applications."
"Gold is projected to strengthen modestly, buoyed by long-term inflation concerns, sovereign debt, the U.S. dollar, fiat currencies generally and the expectation that the Fed will not raise rates aggressively," he said.
Melek also anticipates that industrial commodities will perform well into 2011. "Considerable risks associated with the U.S. dollar and other developed world currencies due to rising fiscal imbalances, supply concerns, and growing interest in commodities as a bona fide asset class and a hedge are additional factors driving the BMO view."
"These are the same reasons that BMO believes will keep gold strong and make other precious metals star performers," he added.
Following a strong performance so far this year, Melek advised that gold and other precious metals will do very well over the next several years.
BMO says the key drivers for the precious metals are:
- strong investor interest due to relatively poor long-term U.S. dollar outlook;
- competitive currency devaluation concerns;
- an eventual move toward a higher inflation environment; and
- improvements in jewelry and industrial demand, as the world pulls out of recession
"Expectations of only modest supply growth should also benefit silver and PGM prices," he advised.