Nicky Shiels

Our macro view is to play for a slower Fed and rising stagflation and recession risks, which will ensure both peak US dollar and peak real US yields. Inflation will fall, but not to target, and the recoveries will be uneven and will ultimately disappoint. That set-up has already ensured that gold pivoted from trading defensively for most of 2022, to trading offensively where dips are actively capitalised on, establishing a new technical bull trend after the Fed ended its 75bp hiking regime in November 2022.

Strong physical demand, renewed central bank purchases and very strong retail coin/bar demand created a robust foundation in the low $1,600s. We have an average price forecast of $1,880/oz with upside risks given a very under-owned investor community and structural bullish drivers (de-globalisation, faster de-dollarisation/re-commoditisation, unsustainable US and global debt paths, and potential pending sovereign crises), which usually emerge after an aggressive Fed hiking cycle. Gold has been down (on a hawkish Fed fighting inflation), but it is not out with an upward trajectory from here on.

Top three drivers for the gold price in 2023: Fed hikes, inflation, pace of Central Bank purchases

Silver has more upside than Gold, because it is fundamentally tighter, is coming off a relatively lower base, is more correlated to a weaker US dollar and has less readily available physical stocks. It is high beta gold in a Fed-induced soft landing. It posted a deficit (including investment demand) in 2022 of ~150 Moz, the first after multiple years of surpluses, and the market is expected to continue posting mild deficits (<100 Moz) into 2027, underpinned by growing industrial demand. Both industrial and retail demand pillars are expected to remain strong into 2023 (albeit lower from the record 2022 levels), providing a critical base from which investment demand should re-engage. We expect China to largely be more open in 2023 than in 2022, creating an added tailwind. In addition, silver’s by-product characteristics ensure it can’t respond as quickly as other metals to demand pressures and deficits. Prices should average $22.50/oz for 2023, with a low-high range of $18-$28/oz.

Platinum is expected to post a small deficit (including investment demand) in 2023 as demand gets a boost from (1) Euro 7 regulations, (2) resilient industrial demand, (3) the continuation of China imports well over demand in anticipation of the switchover to the hydrogen economy and (4) an increase from HDD substitution outweighing declines in the jewellery sector. While consensus expectations is for primary supply to ramp up in 2023 (as built-up WIP stock resulting from 2022 smelter maintenance is released), PGMs are underpricing supply risk from both Eskom (and thus the ongoing and future metal production cuts) and expected declines from Russian supply. We are constructive platinum , which is contingent on gold remaining in its new bull trend and an expected global soft landing as its fundamental balance pivots from multi-year surpluses to multi-year deficits is imminent. Prices should average $1,100/oz for 2023, with a low-high range of $850-$1,350/oz.

Structural headwinds in the form of ongoing but measured substitution in gasoline vehicles (platinum is relatively cheaper, more readily available and less volatile than palladium) and the non-stop increasing market share of electric vehicles (EVs), puts palladium on a path of rising surpluses. Still, with double-digit supply declines from both primary and secondary supply in 2022 ensuring palladium posted a fundamental deficit in 2022, the outlook is fragile and unconvincing. Ongoing and underpriced supply risk from both South Africa (electricity supply disruptions) and Russia (headline/sanction risk, ongoing issues sourcing reliable equipment) argue for some premium to be priced into palladium, while fundamentally prices should be significantly lower. An auto sales recovery in 2023 (versus 2022, but not as strong as pre-pandemic levels) will drive pent-up demand and keep palladium supported near cyclical lows, while a consensual short market view and underpriced supply risks will create tactical bullish opportunities and volatile trading in 2023.