Joni Teves

Gold should benefit from an anticipated cut in the Fed’s policy rates from 5% to 3.25% by the end of 2023E, a decline in US real rates, and a weaker USD against G10 currencies. We think the risk-reward of having a long position in gold is attractive as the tightening cycle ends and monetary policy is eventually eased. The persistence of strategic diversification has been the key factor that has prevented gold from selling off deeper as even real rates rose and the dollar strengthened in the past year; we think that the build of gold allocations ahead should continue to be positive for gold prices. Gold’s resilience has also been a function of a broader investor base compared to a decade or so ago. We think a wider pool of investors are holding relatively small allocations to gold rather than a few having large exposures, implying better endurance to negative macro catalysts as well as room for positions to increase. Finally, elevated macro uncertainty has underpinned demand for gold as a safe haven and a diversifier – with risks remaining elevated, we think that gold can continue to benefit from these types of flows.

Silver tends to outperform gold when the latter is rising. We therefore expect silver to do well in the year ahead, the extent of which is largely dependent on the degree of pick-up in investor interest. Institutional investors have been noticing silver more in recent months, after generally having very little interest for the most part of the past year. We expect silver fundamental demand growth to outpace supply, the latter we see growing by only 3% this year. This implies that, excluding investment in ETFs and similar products, the silver market should tighten. Although this is unlikely to drive prices materially higher on its own, combined with a rising gold price this could encourage much stronger institutional investor flows into silver.

We expect the market to tighten over the next few years. This should support a moderate lift in prices over our forecast period. Investors appear to be starting to warm up to platinum, posing upside risks in an environment where there could be positive effects from rising gold prices. Substitution away from palladium in favour of platinum and growth in heavy-duty diesel loadings should continue to support demand. On the supply side, we expect the recovery in mine production to be constrained, especially out of South Africa, which accounts for over 70% of global mine supply. Recycling is also likely to fall in the coming years as a function of lower loadings in the past 10-15 years, with risks to the downside given refining bottlenecks and the recent trend of vehicles being used for longer before they are scrapped. While there are risks to both demand and supply, tighter markets ahead suggests that platinum prices are likely to be relatively well supported and sensitive to upside catalysts. A weaker global growth backdrop implies downside potential for auto demand which would temper platinum’s upside, but continued challenges in the South African PGM sector means supply shocks could easily push prices higher.

We think the market will see rising surpluses ahead. Some pent-up demand from the auto sector in H1 could provide support for the time being, as automakers fulfil existing order backlogs, implying some lingering pent-up palladium demand. However, we expect market conditions to ease further out, forecasting growing surpluses that would eventually reach more than 1moz in 2025, a function of a weak auto sector outlook alongside the ongoing transition towards EVs. Rising battery electric vehicle (BEV) shares in particular weigh on palladium offtake from the auto sector, which accounts for over 80% of total metal consumption. At the same time, we expect mine supply growth to be relatively resilient, albeit with large uncertainties out of Russia. We see more growth in scrap supply in the years ahead driven by the increase in palladium loadings over the past 10-15 years, which should lift recovery rates. Deteriorating supply and demand fundamentals exert downward pressure on prices in the medium to long term and weigh on investor sentiment.