James Steel

Likely ongoing US dollar weakness may play an important role in supporting gold this year. Gold is also historically sensitive to real rates, and while there has been some disconnect in this relationship in recent months, we expect it to resume as 2023 unfolds. This may especially be the case if the Fed – contrary to market expectations – does not cut rates later in 2023. One reason for this disconnect may be robust underlying physical demand. High prices may cool heretofore robust coin and bar demand and curb jewellery purchases, especially in price-sensitive emerging markets. We still expect strong demand, but possibly not at the pace of 2022. The same applies to central bank purchases, which will likely moderate from record 2022 levels, but stay historically high. Geopolitical and financial market uncertainties are bullish but may already be baked into prices. They will, however, contribute to a likely wide trading range.

Silver prices are likely to benefit from strong industrial consumption this year. While overall global industrial production may be sluggish, demand for silver may be better than the aggregate industrial growth rates suggest. Key elements of industry requiring silver input are likely to enjoy outsized growth. These include EV and conventional auto production, green technology (especially photovoltaic demand) and biomedical applications. Coin and bar demand may moderate from stellar levels, but is likely to stay historically high. Exchange traded funds may begin to accumulate silver after heavy 2022 liquidation. Higher prices may moderate price-sensitive jewellery, as well as heretofore robust coin and bar demand. A weaker US dollar this year and an end to the Fed’s tightening cycle, should these occur, would also support prices. Mine output remains on a broad upward trajectory and will help meet new demand, as will likely strong recycling levels. This supply may help cap rallies.

We expect platinum to build a base above $1,000/oz and move higher this year. Auto demand is likely to benefit from increased substitution with more expensive palladium and a continued recovery in production. Auto recycling supply may also rise, but be capped by limited new inventory. Meanwhile, jewellery demand is likely to increase in 2023, but from low levels. The outlook for other sources of industrial demand is generally positive. South African production may be constrained by load shedding, while production growth elsewhere, including Russia, is generally positive, but limited. Investors may cease liquidating and rebuild ETF holdings. We look for coin and bar demand to remain positive, although it may moderate from 2022 levels. New, mostly scientific and environmental sources of demand, including hydrogen applications, are growing and may increase sharply, but from low levels. We expect the market to swing into deficit in 2023, which should aid prices.

We expect higher palladium prices in 2023. Long-running declines in 2022, on the realisation that Russian material continued to reach consumer markets, may be running its course, as some level of supply risk remains in the market. Ongoing recovery in auto demand will boost consumption, although demand may be limited by loss of market share to alternate vehicles and on substitution with less expensive platinum. Auto recycling levels may also rise. Other forms of industrial demand are likely to increase and we expect exchange traded funds and coins and bars to make modest contributions to demand. Russian, North American and Zimbabwean production is likely to rise. South African output should increase but may be constrained by power shortages. While palladium’s supply-demand balances may indicate a narrowing deficit from 2022 levels, we believe it is still price supportive. Much may depend on Russian flows and geopolitical risk.