HSBC Ups 2011–'12 Au, Pd and Ag Forecasts

In the face of perceived continuing risk aversion, HSBC has upped its gold forecast for 2011 by $25 to $1,450/oz. and in 2012 by $25 to $1,300/oz.

In a research note late Tuesday, HSBC's Head Metals Analyst Jim Steel said: "We believe that gold will continue to attract safe-haven buying from risk-averse investors this year, as European Union sovereign debt concerns persist. The Federal Reserve is likely to continue with its program of quantitative easing in 2011 to prevent deflation from taking root, while the pace of economic activity in the emerging world will likely remain strong, igniting inflation fears."

Steel noted that gold prices are firmly above marginal costs of production and, though the bank expects mine output to rise this year, "increases will likely be hampered by declining ore grades, power constraints, and a lack of professional and skilled labor."

Looking at the wider precious market Steel upped silver 2011 to $26/oz. from $20 and 2012 to $20/oz. from $17.50/oz. Platinum remained at $1,750 in 2011 and $1,650/oz. in 2012. For palladium, the 2011 outlook was increased by $75 to $650/oz. and 2012 by $50 to $700/oz.

Steel wrote of silver: "After performing well for much of 2010, retail coin demand is slowing and we expect ETF demand to flatten out this year. High prices should also encourage an increase in recyclable material, which may be substantial."

On palladium, the star performer of 2010, he opined: "A continued recovery in global automobile production will support both platinum and palladium prices, but should favor palladium, in our view. This is because much of the growth in world auto production will come from China and other parts of the emerging world and the U.S., where palladium-rich gasoline fired vehicles are preferred to diesel-fired vehicles, which have a heavier platinum weighting."