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These tables show our analysts’ forecasts and commentary for 2008. All prices are in US dollars. Click on a metal in the heading above to see the predicted highs, lows and average prices. Click on a column head to sort the table, and on the name of a person for his commentary.
| high | low | average | |
|---|---|---|---|
| YTD actual at 20-Nov-08 | $1011 | $713 | $878 |
| Average forecasts | $1,009 | $744 | $862 |
| Adrien Biondi Commerzbank International SA | $900 | $760 | $830 |
| Stephen Briggs SGCIB | $900 | $760 | $830 |
| Jeffrey Christian CPM Group | $1,060 | $770 | $850 |
| Suki Cooper Barclays Capital | $1,000 | $690 | $840 |
| David Davis Credit Suisse Standard Securities | $1,110 | $760 | $950 |
| Walter De Wet Standard Bank | $980 | $700 | $835 |
| Peter Fertig Dresdner Bank | $1,000 | $800 | $920 |
| Rene Hochreiter James Allen | $1,150 | $840 | $1,050 |
| Michael Jansen JPMorgan Chase Bank | $975 | $775 | $814 |
| Tom Kendall Mitsubishi Corporation (UK) Plc | $1,025 | $780 | $920 |
| Philip Klapwijk GFMS Ltd | $1,001 | $810 | $866 |
| Martin Murenbeeld Dundee Economics | $1,015 | $775 | $890 |
| Ross Norman TheBullionDesk | $1,250 | $840 | $976 |
| Rhona O’Connell ROC Consultancy Ltd. | $950 | $730 | $880 |
| Frederic Panizzutti MKS Finance S.A. | $1,001 | $780 | $872 |
| John Reade UBS Investment Bank | $1,000 | $700 | $825 |
| Jeffrey Rhodes INTL Commodities | $975 | $660 | $755 |
| James Steel HSBC Bank USA NA | $950 | $700 | $800 |
| Bob Takai Sumitomo Corporation | $1,000 | $650 | $850 |
| Edel Tully Mitsui & Co. Precious Metals, Inc | $1,045 | $750 | $903 |
| Trevor Turnbull Scotia Capital | $1,000 | $700 | $750 |
| Matthew Turner Virtual Metals | $980 | $740 | $845 |
| Bhargava Vaidya B.N. Vaidya & Associates | $960 | $720 | $850 |
| Alexander Zumpfe Heraeus Metallhandelgesellschaft m.b.H. | $975 | $740 | $825 |
| high | low | average | |
|---|---|---|---|
| YTD actual at 20-Nov-08 | $20.92 | $8.88 | $15.56 |
| Average forecasts | $18.49 | $13.09 | $15.17 |
| Adrien Biondi Commerzbank International SA | $17.00 | $14.50 | $15.25 |
| Stephen Briggs SGCIB | $17.00 | $11.25 | $13.75 |
| Tom Butler Virtual Metals | $18.50 | $14.00 | $16.20 |
| Jeffrey Christian CPM Group | $21.00 | $12.25 | $16.50 |
| Suki Cooper Barclays Capital | $17.00 | $12.70 | $14.90 |
| David Davis Credit Suisse Standard Securities | $25.00 | $14.00 | $17.30 |
| Peter Fertig Dresdner Bank | $17.00 | $14.50 | $16.00 |
| Michael Jansen JPMorgan Chase Bank | $16.50 | $13.50 | $14.00 |
| Tom Kendall Mitsubishi Corporation (UK) Plc | $17.75 | $13.25 | $15.85 |
| Philip Klapwijk GFMS Ltd | $19.25 | $14.20 | $15.45 |
| Ross Norman TheBullionDesk | $18.80 | $14.93 | $16.75 |
| Rhona O’Connell ROC Consultancy Ltd. | $17.25 | $12.50 | $14.00 |
| Frederic Panizzutti MKS Finance S.A. | $19.00 | $12.00 | $16.00 |
| John Reade UBS Investment Bank | $20.50 | $11.60 | $15.10 |
| Jeffrey Rhodes INTL Commodities | $20.50 | $12.75 | $13.95 |
| James Steel HSBC Bank USA NA | $16.50 | $13.00 | $14.00 |
| Bob Takai Sumitomo Corporation | $18.00 | $12.00 | $15.00 |
| Edel Tully Mitsui & Co. Precious Metals, Inc | $18.10 | $13.50 | $15.10 |
| Trevor Turnbull Scotia Capital | $18.00 | $13.00 | $14.50 |
| Bhargava Vaidya B.N. Vaidya & Associates | $17.75 | $12.00 | $14.25 |
| Alexander Zumpfe Heraeus Metallhandelgesellschaft m.b.H. | $17.90 | $13.50 | $14.80 |
| high | low | average | |
|---|---|---|---|
| Average forecasts | $441 | $323 | $377 |
| Adrien Biondi Commerzbank International SA | $415 | $335 | $362 |
| Stephen Briggs SGCIB | $425 | $300 | $350 |
| Jeffrey Christian CPM Group | $420 | $340 | $368 |
| Suki Cooper Barclays Capital | $420 | $300 | $358 |
| David Davis Credit Suisse Standard Securities | $420 | $320 | $381 |
| Peter Fertig Dresdner Bank | $425 | $350 | $390 |
| Rene Hochreiter James Allen | $600 | $350 | $450 |
| Michael Jansen JPMorgan Chase Bank | $440 | $350 | $416 |
| Tom Kendall Mitsubishi Corporation (UK) Plc | $445 | $340 | $370 |
| Philip Klapwijk GFMS Ltd | $470 | $335 | $397 |
| Ross Norman TheBullionDesk | $495 | $370 | $412 |
| Rhona O’Connell ROC Consultancy Ltd. | $425 | $320 | $390 |
| Frederic Panizzutti MKS Finance S.A. | $420 | $320 | $365 |
| Rupert Prest Standard Bank Plc | $415 | $320 | $355 |
| John Reade UBS Investment Bank | $420 | $300 | $350 |
| James Steel HSBC Bank USA NA | $400 | $330 | $360 |
| Glyn Stevens INTL Commodities Inc | $460 | $280 | $365 |
| Bob Takai Sumitomo Corporation | $450 | $300 | $350 |
| Edel Tully Mitsui & Co. Precious Metals, Inc | $440 | $335 | $370 |
| Matthew Turner Virtual Metals | $405 | $280 | $340 |
| Alexander Zumpfe Heraeus Metallhandelgesellschaft m.b.H. | $450 | $325 | $415 |
| high | low | average | |
|---|---|---|---|
| Average forecasts | $1,779 | $1,382 | $1,557 |
| Adrien Biondi Commerzbank International SA | $1,590 | $1,350 | $1,454 |
| Stephen Briggs SGCIB | $1,650 | $1,275 | $1,450 |
| Jeffrey Christian CPM Group | $1,700 | $1,225 | $1,415 |
| Suki Cooper Barclays Capital | $1,750 | $1,350 | $1,620 |
| David Davis Credit Suisse Standard Securities | $2,100 | $1,445 | $1,700 |
| Peter Fertig Dresdner Bank | $1,700 | $1,450 | $1,600 |
| Rene Hochreiter James Allen | $2,000 | $1,529 | $1,750 |
| Michael Jansen JPMorgan Chase Bank | $1,750 | $1,450 | $1,475 |
| Tom Kendall Mitsubishi Corporation (UK) Plc | $1,760 | $1,380 | $1,575 |
| Philip Klapwijk GFMS Ltd | $1,770 | $1,455 | $1,527 |
| Ross Norman TheBullionDesk | $1,950 | $1,530 | $1,665 |
| Rhona O’Connell ROC Consultancy Ltd. | $1,650 | $1,350 | $1,575 |
| Frederic Panizzutti MKS Finance S.A. | $1,700 | $1,420 | $1,563 |
| Rupert Prest Standard Bank Plc | $1,720 | $1,375 | $1,525 |
| John Reade UBS Investment Bank | $1,850 | $1,300 | $1,520 |
| Daniel Smith Standard Chartered Bank | $1,700 | $1,400 | $1,570 |
| James Steel HSBC Bank USA NA | $1,650 | $1,400 | $1,500 |
| Glyn Stevens INTL Commodities Inc | $2,100 | $1,425 | $1,620 |
| Bob Takai Sumitomo Corporation | $1,800 | $1,200 | $1,500 |
| Edel Tully Mitsui & Co. Precious Metals, Inc | $1,850 | $1,400 | $1,675 |
| Matthew Turner Virtual Metals | $1,650 | $1,300 | $1,475 |
| Alexander Zumpfe Heraeus Metallhandelgesellschaft m.b.H. | $1,750 | $1,400 | $1,510 |
Download the forecast for 2008.
© 2005-2008 London Bullion Market Association
13-14 Basinghall Street, London EC2V 5BQ
E mail@lbma.org.uk
T +44 (0)20 7796 3067
F +44 (0)20 7796 2112
© 2005-2008 London Bullion Market Association
13-14 Basinghall Street, London EC2V 5BQ
Eml. mail@lbma.org.uk
Tel. +44 (0)20 7796 3067
Fax. +44 (0)20 7796 2112
There is a potentially difficult year ahead for PGMs, with high prices sapping demand within the jewellery sector along with other bearish factors in the West such as diminishing car demand, although this may be partially offset by expansion in the Far East. Adding to this, some uncertainty over global supply levels for the coming year makes choosing the correct averages very challenging. But with recent record highs, again looking for some correction in 2008 would put more pressure on platinum than palladium. The larger amounts of platinum held in hedge funds and commodity-linked index products weigh on the more expensive sibling.
Turning to supply-and-demand fundamentals, over the longer term, our studies indicate that global gold production (primary supply) will begin to decline as the diminishing number of new reserves fails to compensate for dying mines. The decline in production will likely be accelerated should the gold mining industry continue to incur significant year-on-year inflation rates which are not offset by similar or significantly higher gold price increases.
We believe central bank sales will likely wither going forward, and the banks could become net buyers. Producer de-hedging has accelerated in recent years. In particular, we expect that AngloGold Ashanti could enter the de-hedging market, contributing an additional 3 to 3.5 million ounces during 2008. We also believe investment demand (ETFs) will continue to be robust during 2008. Volatile and higher gold prices coupled with the expected economic slowdown in the US and Europe could, however, stem jewellery demand in these areas, but demand from China and India will likely remain positive.
Geopolitical tensions, which generally lead to higher gold prices and price volatility, have heightened with the political turmoil in Pakistan after the assassination of Benazir Bhutto and the cross-border operations of Turkish troops to hunt down Kurdish separatists in Iraq. Tensions are also ever-present between the US and Iran and the US and North Korea.
Given this longer-term scenario, we believe the supply-demand imbalance going forward will begin to accelerate at an ever-increasing pace into a net deficit, which in turn will likely put significant upward pressure on the gold price.
Increased vehicle production from China and India, together with the increased likelihood of an ever-increasing switch to diesel powered vehicles in the US, will likely keep prices buoyant going forward. However, GFMS have observed that the recent record high prices have caused a renewed drive to substitute platinum with palladium. GFMS also report manufacturers incorporating palladium in diesel autocatalyst systems. Thrifting and substitution of platinum have been common practices in the past, but they were, in the main, offset by tightening environmental legislation, which generally increases the demand of platinum used per vehicle. Tightened environmental legislation is to be enforced at the end of 2008 in Europe and in 2010 the US.
We see the US economy coming under increased pressure during the first half of 2008. As a result credit spreads should widen further. Combined with sovereign and political risk on the rise in certain countries, we should see support for gold in 2008H1.
The US dollar’s woes are linked to US interest rates declining. The Fed is set to continue easing rates, while the ECB seems unperturbed by slowing economic growth, and is unlikely to cut rates for now.
Although jewellery demand in major centres showed a decline towards end-2007, this must be a continuous trend before any real price impact will be seen.
The new futures contract that started trading on the Shanghai Futures exchange is bound to renew interest in gold as an investment in China. We do believe this impact could be large.
Continued portfolio diversification via commodity investment vehicles should provide support to the metal on the downside.
Crude oil started the year with a bang as it traded at 100/bbl for the first time. However, much of the price increase is based on speculation rather than the underlying supply and demand balance. In 2008, demand is expected to expand less than the consensus view due to a slowdown of G7 economies. In China as well, GDP growth is likely to be lower than last year. By the end of this year, Brent is predicted to be trading at 70/bbl.
Demand from financial investors is far more important than demand from the jewellery industry for the development of precious metal prices. It is often said that investors buy gold as a hedge against rising inflation. However, empirical experience does not bear this out. US inflation has no significant effect on the gold price. Demand from financial investors is largely determined by the US dollar’s performance in the currency markets.
Since the subprime mortgage crisis broke out, what has driven the dollar’s weakness is the expectation that the Fed will cut interest rates so that the dollar becomes less attractive relative to other currencies. Following the recent weak US economic data and the rise in the unemployment rate to 5%, our US economists anticipate that the Fed will start lowering interest rates more aggressively, cutting the Fed funds rate during the first half of the year in four steps of 25bp each to 3.25%. This means that the Fed Funds target rate is well below the ECB refinancing rate.
The US dollar is expected to weaken against the euro to 1.53 in Q2, but in H2 the tables will be turned. US GDP growth should pick up again as early as Q2 and further accelerate after the summer, so that the market will no longer expect further interest rate cuts. In the Eurozone on the other hand weaker growth is expected, so that the ECB should reduce the refinancing rate by 25bp. The US dollar is likely to appreciate against the euro to 1.43. Precious metals will then face a headwind from falling oil prices and a firmer dollar. They will not be able to withstand this pressure and prices should ease significantly. Silver is likely to perform better than gold in H1 but to perform worse in H2. Due to production problems in South Africa and the demand pattern of the automobile industry, platinum is expected to hold better than palladium.
On the bearish side, the influence of producer de-hedging will diminish and high and volatile prices will see bouts of weakness in jewellery demand, whilst a US recession could see the oil price fall back into the 70s. We also remain wary of sharp corrections in emerging market equities that could be replicated in gold. Nevertheless, for now at least the multi-year bull market is intact and 1,000 gold is a realistic target.
On the face of it, the fundamentals are less than encouraging: slowing economic growth rates are likely to affect consumption in electronics, demand from the photographic sector is expected to fall further, and there is little to support an upturn in silverware fabrication. At the same time a meaningful supply response to record prices will start to be felt. The influence of the gold price, however, is likely to outweigh all of these factors.
There will almost certainly be short periods when the silver price out-performs relative to gold. However, over the year as a whole the white metal may well lag behind, with the gold:silver ratio widening towards 60 as a result.
South African producers should, on paper, be able to deliver a significant boost to output this year, but the kind of problems that were seen throughout 2007 – strikes, process-equipment breakdowns, shaft closures for safety reasons, etc. – are again likely to prove disruptive. The situation in Zimbabwe is hardly reassuring either.
On the demand front, tightening emissions limits plus vehicle sales growth in Asia and central Europe should see use of platinum in autocatalysts continue to rise in 2008, despite ongoing substitution in both diesel and gasoline catalyst systems.
As a result, CTAs, hedge funds and the general public in Japan are expected to remain very friendly towards platinum, and platinum exchange traded funds are likely to suck at least another 100,000 oz of much-needed metal out of the market.
Our 2008 year-average would be higher were we not a little concerned about how the market will handle a potential rise in the dollar versus the euro, if it came to that. Too much Fed focus on ‘inflation’ and not enough on ‘recession’ would also not benefit gold.
In early 2008 gold is benefiting from renewed dollar bearishness, inflationary fears in an increasing number of countries (although real interest rates are by no means all negative), geopolitical tensions and concerns over continued contagion form the credit market problems, plus a positive view overall with respect to the commodities sector. These are easily enough to propel prices through 900 and onwards towards 1,000, but any such challenge will be professionally driven. For a solid physical support base to develop gold needs to lose some of its speculative excess.
Supply developments are also helping. Supply fell by 2% in 2007 due to lower output from both of the major producing countries – South Africa and Russia. Looking ahead, high platinum prices, capacity expansions and improved recoveries should all result in a pick-up in global supply and we are forecasting 2% growth in 2008, although this will not be enough to close the gap on demand.
Adding to this physical tightness, platinum is also benefiting from the continued investor interest in commodities as an asset class. Figures from London-listed ETF Securities show that physical holdings for its platinum ETF, which was launched in April 2007, stood at 140,000 ounces towards the end of the year.
As an asset class we remain bullish for commodities, in particular gold, oil and the agricultural sector. Strong institutional demand from index and fund investors will underpin investment in gold and oil as the combined effects of political uncertainty, terrorist activity and the potential for supply disruptions plague these markets. The agricultural sector will continue to react positively to the effects of grain shortages brought about through demand from China as well as the diversion of grain feed stocks for the production of ethanol.
The threat of a global recession will increase if the US does not act prudently and convincingly to restore confidence in its financial house. In that event, extreme sell-offs in all dollar-denominated assets will occur, and 2008 will be remembered as the most volatile year in a decade.
Supply fundamentals are strong, with mine output flat to down and potential new projects increasingly likely to be delayed as they undergo rigorous re-examination in the wake of high-profile capital costs increases. In 2008, we can look forward again to significant demand in the form of de-hedging as AngloGold Ashanti eliminates most if not all of its 10.5-million-oz hedge book.
Mine supply of silver as a by-product is growing with the surge in base metal production. Some of the new mines coming on stream are backfilling lost output, but the net result is more silver, especially from China, where lead and zinc production are increasing.
We feel silver may struggle to maintain a 50:1 or lower price ratio with gold. However, we do not discount the ‘silver bugs’ that have an inherent affinity for the metal as an investment.
Much will depend on both the severity of the expected economic slowdown and how gold reacts. The subprime crisis, which has led to a collapse in trust of financial institutions, has certainly been helpful. Such a crisis is what was always said to be required for gold to come in to its own, and that the metal has shown some of its fabled ‘safe-haven’ status is bullish in itself.
Gold’s physical supply and demand situation is not so solid, particularly as high prices take their toll on jewellery demand, although new supply will again be constrained by a last round of major dehedging.
The risk is that the US economy fares much better than expected and the dollar stages a recovery. Such an unexpected outcome would be highly negative for gold, given expectations, but probably unlikely to make itself felt before mid 2009.
All of this will contribute to higher prices. The only negative factor is that physical demand for jewellery will reduce at higher levels.
However, we do not expect the metal to race to the forecast high of 975 in a straight line. Investor demand flooded the market in the first days of the year, bringing speculative longs to new all-time highs. It is worth noting that the opening of gold futures trading in Shanghai in January adds further interest from the investment community. This leaves the metal vulnerable to a correction – a volatile picture that should persist over coming months. That in turn broadens our expected trading range. While the dominant group will be investors and speculators, the dominating force behind the moves again will be the US dollar. It can’t be ruled out that the greenback will test fresh lows if the US economy really goes into recession. Our bullish gold price view is supported by a muted supply picture, with production likely to remain stable at best if not decrease over coming years. Additionally, we are sceptical that central bank gold sales will reach the yearly limit as agreed to in the Central Bank Gold Agreement.
Last but not least, it is worth mentioning that Chinese consumers pretty much ignored new price records. In contrast to earlier rallies, we witnessed remarkable demand from the Shanghai Gold Exchange and it looks like people are increasingly getting used to high prices with growing wealth. This price inelasticity might give an additional boost – or at least good support – to platinum.
Though it is difficult to estimate the extent of Russian stocks, we do not consider the overall muted-to-bearish fundamental situation as being over for the time being, especially since a substantial amount of metal is likely to become available out of auto catalyst recycling over the coming years.
Nevertheless, we expect the demand side to provide some support in 2008. First of all there is the car industry again: though a huge part of required metal is sourced out of the recycling process, growing demand out of the Asian automobile industry should generate net demand. Together with an again-promising demand trend from of the electronic industry and the bullish impetus from a soaring platinum price, we do not rule out that palladium will finally deliver a strong performance – even compared to other precious metals.