Conference 2018: Interview: Tom Kendall

Head of Precious Metal Sales, ICBC Standard Bank Plc

Transcript

The outlook for precious metals in 2019 is quite mixed, I would say, across the four main precious metals and within them. For gold, it is always a macro story and, right now, when you talk to the institutional investors and the hedge funds who have participated in this market in the past, they tell you that they do not see a big story for gold now on the macro front. But, that has been the case for two or three years now. What is different and what is going to come through in 2019 is you will have more clarity on when that story that is going to get them enthused about gold again is going to emerge.

By that, I mean, particularly for the US, the dynamics of the US economy, the dynamics of the US budget and the dynamics of the US debt. It is all go to come very much more into focus, I think, than it has been for the last two or three years now. That means for gold that only when you get that institutional money coming back in a more significant way, when they feel gold is needed in their portfolios as a diversifier particularly against inflation on the one hand but also on uncertainty about what is happening with US rates, with the US budget deficit and with the interest burden that the US is facing as rates go higher, that then should start to create a more positive story for those guys to get engaged with.

Platinum and palladium are always a more industrial story. There have been some interesting things we have heard this week at the conference about the dynamics of one and the other, and the interchangeability in automotive catalysts. There are some interesting stories there for platinum and palladium. Good old silver follows along in the background, taking people by surprise more often than not. I guess you look at silver and you say, ‘It has been beaten up pretty badly’, so if you want to be positioned, now is not a bad time to be looking at it.

For me, when you look at gold in 2018 and what has been happening with again US interest rates, we always go on and on about interest rates but they are a key driver for gold: real rates and where they sit. Given the way that yields in the US have gone up and real rates have turned around, I actually think that gold has held up pretty well in dollar terms at around the 1,200 level in 2018. It is not necessarily going to turn around and enter a bull market anytime soon, but I think we are starting to see the signs of a slow reengagement from parts of the demand universe that have not really been engaged for a time. I think it is one of stability for 2019. In non-dollar terms, gold has done what it should do, which is to provide a very effective hedge against currency depreciation this year, and I think that that is going to be a continuing theme for investors and for people who are looking for a hedge outside of dollar-denominated currencies.

The jewellery sector in China contracted quite significantly. It has now stabilised but it is not really showing too much growth. The auto industry has suffered from that whole Dieselgate issue. Looking forward, for platinum, one of the key things that need to happen is for platinum to come back more into the auto-catalyst sector. We have had historically, this interplay between platinum and palladium, partly driven by price and partly driven by environmental regulation, but the use of those two metals is interchangeable to an extent in auto catalysts. As the price of one diverges from the other, and as the big consumers – the automakers – start to get a little more interested in the availability of supply looking forward, then you start to see the dynamic where they think, ‘Maybe we are too exposed to palladium. We need to get a little more exposed again to platinum. We need to rebalance our way of thinking about these two metals.’ I do not think there is a killer, new demand coming through for platinum that we could point to for 2019 but that rebalancing story between the two metals is going to be more of a focus.