Precious metals forecasts 2018

January 16, 2018 11:05 AM

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Gold: average: $1358; high: $1400; low: $1260
Perversely we see only modestly higher gold prices ... yet believe gold has rarely been more important to own. Why so? 

2016 and 2017 saw gold higher on strong spec buying in Q1, taking the market above the level of most physical buyers, before retracing in Q4 as the stale specs bailed out … but still ending up about 10% on the year. 

2018 is starting much the same, but at a higher price level and with a larger spec position. If gold follows form then this should suggest another impasse between the paper and physical markets as prices range trade once again. Even if volatility falls it does not negate the reason for owning the physical as the tail risks are arguably greater than ever as the Fed tightens. 

Gold has become price elastic just as it was in the 1990's. And then there was 2000... the best is yet to come, but not just yet. Patience.

Silver: average: $18.08; high: $19.10; low: $15.60
If silver was a dog it would be a labrador. Quiet, obedient, submissive even ... until it's not. That is to say, it follows patiently behind gold on a leash ... and then outshines when things kick off. 

Much loved by the speculator community, silver surprises every now and then - much like a decent fellow with one sherry too many who becomes unexpectedly garrulous, only to suddenly retrace into the shadows to nurse a hangover. If we expect gold to notch up an 8% gain then silver should score 12%. That would give it an average price of $18.08 per ounce in 2018.

Trading ranges for silver are becoming compressed with support and resistance levels rapidly converging to form a large pennant on the charts. We see support back to 2003 at $15.60 and resistance back to 2016 at $17.58; a break-out is coming in the next few months and we think it will be on the upside.

Unlike gold, the speculative overhang in silver is not burdensome, so there is scope for silver to outperform gold, making it our favorite performer for 2018.

Crufts here we come. 

Platinum: average: $884; high: $1045; low: $815
Platinum as a metal is highly resistant to tarnishing ... the same cannot be said of some of its applications which are starting to look distinctly unappealing. Prices of commodities in the short term are driven by sentiment and sentiment is driven by fast news flows and expectations.

Sadly not much there to support this ailing metal. Many demand side applications are struggling from both thrifting and substitution, giving investors little to look to. 

Jewellery demand has fallen four years in a row and the outlook in the auto sector from diesel engines is not promising. With total demand in decline and the market set to move to a supply surplus in 2018, we see ongoing downside pressure on prices. Once the shiniest of all precious metals, platinum is struggling to find friends.
On a positive note, we are seeing mine production down and at levels last seen in 2009 while technically on the charts platinum is distinctly oversold. 

Sadly one of the strongest arguments in its favor is that so many people think poorly of it.

Palladium: average: $1355; high: $1500; low: $800
With a trajectory that looks like a cryptocurrency and not an industrial commodity, it is tempting to think palladium's rally cannot be sustained. Platinum's loss has been palladium's gain. 

Maybe we have been watching Bitcoin and find ourselves asking ... why not higher still. Total demand is topping 10 mio and auto demand is growing; in fact, palladium saw good demand from most sectors except surprisingly from investors. The last three years have seen selling into price strength perhaps believing the rally cannot be justified. But after six years of supply deficits, stocks are thin and pipeline metal scarce. Happily, for industrial users, there was also weakness in the price-sensitive jewelry sector. 

Meanwhile, we witness declining Russian mine supplies and evidence that stocks are depleted. An eye on palladium lease rates will warn you of extreme tightness and this market has the potential to earn the name the Ford Motor Company once gave it - "un-obtainium"

The stage is set for an encore in 2018. 
 

About the Author

Ross Norman is owner and chief executive officer of the London-based gold broker Sharps Pixley Ltd.