Range : $1,550 - $1,800
Average : $1,736
We see the long term gold bull run remaining very much intact, but the conviction and patience of gold investors may be tested in 2013. Against the backdrop of an improving macro-economic environment, particularly in the United States, we see dollar firmness and a fading of the fear trade providing a drag on rising gold prices. For a market used to a 17% y-o-y gain, a single digit percentage increase may feel like a bear market. In essence, we see 2013 looking surprisingly like 2012 — that is modest price gains, declining volatility and extended periods of range trading. The caveat to this is the U.S. debt ceiling issue, which arises in March 2013 — a fudged outcome could of course generate far higher outcomes than shown above. The key issues will be ongoing Central Bank purchases and growth in investment demand, this being partially offset by a reduction in speculator positions and moderately lower Indian demand as import duties are raised again. Broadly speaking, though, gold will continue to be seen as cheap insurance for those concerned with tail risk and is a high quality asset that holds value amidst competitive devaluations of currencies.
Range : $26.00 - $35.00
Average : $31.16
We expect some softness in silver prices during 2013, which, after a stellar 10-year run, looks vulnerable as the fear trade evaporates and speculators look to reduce their positions commensurately. Silver has consistently been the top performer within the commodity complex but is looking increasing like an aging rock star — a little past its best. We forecast a weak start to the year on U.S. dollar firmness before good demand from industrial applications as global IP picks up, coupled with re-stocking in the second half. With its recent history of price spikes, there is a danger that sharp rises will be seized upon by producers as an opportunity to sell forward, effectively capping the rallies. With primary mine production continuing to rise to new record highs, the onus is increasingly on the silver bull's to prove the case.
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