OPEC’s production-cutting deal had set the stage for the oil market in 2017, but base metals prices hinge on policy coming out of China.
Industrial metals continue to see support from strong Chinese buying and the reflationary trade that followed Donald Trump’s election victory.
However, analysts at J.P. Morgan think prices have run ahead of fundamentals, with the exception of zinc.
The optimism for zinc, especially in the first half of the year, stems from an increasingly tight supply picture.
The analysts are, however, forecasting weakness for metals such as copper in 2017, particularly later in the year.
“While our base case embeds Chinese fiscal and monetary policy swaying from growth to rebalancing in 2017, if further stimulus measures are implemented early next year, our forecasted fundamental price reckoning in base metals will almost surely be delayed,” J.P. Morgan told clients.
For gold, the analysts noted that purchases in Asia are “tepid at best,” and U.S. economic growth prospects are strong enough to make a strong argument against owning the precious metal in the very near term.
However, J.P. Morgan thinks the prospects for gold are more balanced in 2017.
The analysts’ valuation models and real interest rate forecast suggest a fair price for bullion will be between US$1,180 and US$1,244 per ounce next year.