By Jan Harvey
LONDON (Reuters) - Analysts have made big cuts to expectations for gold and silver prices this year and next after the metals, weighed down by the prospect of higher U.S. interest rates, failed to recover last year's losses in early 2015.
A poll of 38 analysts and traders conducted by Reuters over the last month returned a median forecast of $1,209 an ounce for gold this year, down from $1,234 an ounce in a similar poll conducted in January.
In 2016, gold is now expected to average $1,250 an ounce, down from an earlier forecast of $1,278 an ounce.
The metal ended the first quarter little changed, failing to recover last year's 2 percent losses, as expectations that the United States was on track for its first rate increase in nearly a decade tempered investors' appetite for gold.
Such a move would boost the dollar, in which the metal is priced, and lift the opportunity cost of holding a non-yielding asset.
"The relevant question for gold is not only the hike of the Fed Funds rate, but how U.S. Treasury notes and bonds, as well as the U.S. dollar, will react," Peter Fertig, director of Quantitative Commodity Research, said.
"From my point of view, yields in the United States are too low, and Treasury yields should rise to 2.25-2.50 percent. This should also lead to a firmer U.S. dollar against the euro. Both reactions should drag gold considerably lower."
Weak prices have in the past led to strong demand growth from the key physical gold markets in Asia, particularly China and India. Demand for jewellery, coins and bars hit record levels in 2013 after gold prices plunged.
However, current prices do not seem to be stimulating the same response, analysts said.
"The festive and wedding demand from India in January, Dubai's Shopping Festival in January and the Chinese Lunar New Year celebration in February turned out to be highly disappointing," Societe Generale analyst Robin Bhar said.
Analysts also cut back their forecasts for silver >. The median forecast returned in the March poll was $16.70 an ounce for this year, down from $17.20 in January. For 2016, the median forecast was $17.80, down from $18.20.
Silver outperformed gold early in the year, with the gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, retreating from December's 5-1/2-year high to its lowest since October last month.
"We don't see a fundamental reason for silver's outperformance," Julius Baer analyst Carsten Menke said.
"The market remains oversupplied as high and volatile prices in recent years have curbed industrial demand. Hence, silver remains dependent on investment demand, as gold does, implying that prices should come down again with gold."
(Editing by Veronica Brown and Dale Hudson)
