Platt is looking for the gold market to be weaker. “I’m not looking for much lower than $1,500 on the downside. It may be that given the negative sentiment, it is good for the market as it has started to exhaust people,” Platt says.
Mohr adds, “One of the factors driving up the price of gold was that there would be further QE that many people [felt] would be inflationary. There is not going to be a [QE4]. We are at the end of the ratcheting up by the Fed. When you have a Fed meeting now, there is a discussion of when the asset purchasing program will begin to be withdrawn. We don’t think [it will happen] until 2014, but just the discussion of when is enough to unnerve the gold market.”
She also pointed out that Basel III put out its revamped liquidity ratio for banks and did not include gold as one of its assets. “They included equities, albeit with a haircut. To include equities and not gold was surprising,” Mohr says.
Is it over?
Gold has been off its high for the longest period in its current bull move — even longer than the 2008 shock — and it is still nowhere near its peak, leading some to ask whether a long-term high is in. Analysts are mixed.
“Gold had taken off because of all the massive easing. At some point the Fed will pull back its balance sheet,” Meir says. “Gold has had its peak for years. I don’t see it going back to [all-time highs]; we are at some point going to start to pull back this quantitative easing.”
Mohr expects gold to average $1,650 in 2013. “I don’t see a huge decline because there are many people around the world who do view gold as a store of value, and central banks continue to buy gold. So I see it holding up, I just don’t see it moving higher.”
She adds, “The 2011 high could be a long-term top. It is a peak for this business cycle, is the way I would put it.”
Gero is still a long-term bull but is in no hurry to get back in. He says the extent of the rally would be based on how smoothly the Federal Reserve and other central banks execute an exit strategy. Further, with the Fed signaling there will be no exit strategy until 2014, there is no urgency to buy gold.
All that glitters is …
While she is not particularly bullish on gold or silver, Mohr likes palladium. “Palladium still is considered a precious metal but really is an industrial metal used in auto catalytic converters, [looks strong],” Mohr says. “There are two reasons palladium will perform well: One is [that] the auto market in emerging markets, particularly China and India, probably will be a lot better. The second factor is last year’s strikes in South Africa, which supplies 34% of worldwide palladium.”
She notes that the supply has dropped because of the labor strife and the Russians’ huge stockpile of palladium has depleted. “When that is gone the price of palladium will go higher; it already has performed well this year,” Mohr says.
And Mohr is talking the long-term. She expects the price of palladium to average $745 per oz. in 2013, $800 in 2014 and $850 in 2015. It averaged $643 in 2012.
In addition to palladium, Mohr is extremely bullish on zinc. “The story on zinc is that there [are] going to be mines that get depleted in 2013 to 2016. Beginning next year prices are going to move higher,” she says. Mohr sees zinc averaging 96¢ this year, $1.10 in 2014 and $1.40 in 2015.
A main driver of Mohr’s bullish view on base metals is Scotiabanks’s estimates of continued growth in Chinese auto demand. The bank estimates the sector to grow another 6% after a 10% increase in 2012.