Analysts' forecasts

Gold will benefit from lower yields and a weaker dollar in 2024 as the US Federal Reserve is widely expected to dial back interest rates in response to moderating inflation and slower growth. This should help bullion reach record highs early in the year; however, if the actual pace and magnitude of rate cuts ends up undershooting expectations, then gold may be in for a downwards correction as the year progresses. Geopolitical tensions as well as speculation over the outcome of the US election should keep gold well supported as a risk hedge. Demand will be supplemented by ongoing purchases by central banks and, despite relatively high prices, professional and retail investors.

The three most important factors for gold: rate cuts, geopolitics, elections.

Growing geopolitical uncertainties across Asia, the Middle East and Europe will continue to support the gold price throughout 2024 and we expect to see a test of $2,150 per ounce during the first half of the year. Notwithstanding, it has been clear for several years that Western investors no longer hold the precious metal in the same regard as they once did, when it comes to gold as a safe-haven asset. This was further confirmed in 2023 by the strong physical gold sales of bars and coins by private investors and the ongoing outflows that can be seen on all major gold ETFs over the course of the year. We believe that investor demand for gold will continue to decline in 2024 if we do not see any heightened geopolitical unrest.

It should be noted that expected rate cuts by the US Fed are already reflected in today’s gold price, which was one of the main drivers behind the price rally seen in Q4 2023. As such, the impact of four rate cuts, totalling 100 to 150 basis points, will be negligible.

The key drivers for higher prices this year remain the ongoing gold purchasing by central banks that divest mainly their US dollar and other fiat currency holdings, as well as the growing threat of a possible multi-year recession. The increasing likelihood of further escalation or even a new conflict in Asia or Europe will also continue to be supportive.

We think 2024 will be a year of two halves for gold. During the first six months, we expect its price will come under pressure. The current market consensus sees cumulative policy rate cuts of 1.5% by the Fed in 2024. We think this is far too aggressive and expect that evidence of slower-than-expected rate normalisation in the next few months will boost the dollar and weigh on the yellow metal. By mid-year, we expect the price will trade as low as $1,850, the decline cushioned by healthy central bank demand and bargain hunting from the physical markets.

In contrast, we see a healthy recovery emerging in the second half of the year. By that point, we expect the Fed will both start cutting rates and signal further and accelerated easing in the year ahead. Coupled with ongoing support from central bank buying, as well as persistent economic and geopolitical uncertainties underpinning safe-haven demand, this should fuel a price rally that sees gold returning to $2,100 before year-end. This will result in an average for the year of $1,980, the fifth consecutive record high.

Gold remains somewhat overvalued versus our fair-value model, carrying a $150-per-ounce risk premium. Regional conflicts may be contained for now, which could see this premium fade in the coming three months, yet perceptions of elevated geopolitical risk have kept central banks buying gold at a record pace and this may continue over the next two years. Some of gold’s main drivers, such as real interest rates, the dollar and equities, might turn positive for the metal, especially with a Fed pivot looking more likely in early-to-mid 2024. A sticky risk premium, robust central-bank purchases and the potential for ETF outflows to switch to inflows are strong support factors.

Three main drivers: the rate of central bank purchases; the pace and timing of Fed interest rate cuts; escalation / de-escalation of regional conflicts.

Geopolitical risks continue to bubble in various hot spots adding to near-term inflationary risks and continued safe-haven demand for gold. We hold the view that a soft landing would be engineered in the US and Europe; China’s growth would be soft; inflation risks would abate, and peak US dollar and yields have occurred. Central bank buying should continue to be an important support factor, as will continued portfolio diversification and speculative money on the long side. Huge government deficits and huge increases in public and private debt should support the gold price.

The three most important factors that will impact on the gold price in 2024: US monetary policy; central banks; geopolitics.

We expect gold to test new highs in 2024, supported by a solid downside floor. Gold has worn many hats over the past year: a safe haven amid geopolitical tensions, an inflation hedge, a recession hedge, a hedge against financial market uncertainty and a barometer for rate-cycle changes. Investor appetite has already shifted at the start of 2024, with markets positioning for a soft landing and anticipating rate cuts. However, we believe gold may have got ahead of itself in pricing in rate cuts, and while we believe the macro environment is set to turn more supportive for gold, we do not think this is imminent.

Gold is likely to continue to fluctuate between its commodity and currency status in 2024. The macro environment remains pivotal in terms of determining the upside risk, and our expectations for central banks to cut rates, the US dollar to soften and real yields to ease creates a powerful cocktail to propel gold prices to test new highs.

By far the most significant factor for gold price action in 2024 will be official-sector flows, in our view. Key determinants to track for the coming year include: central bank activity; tactical interest looks poised for rate cuts; ETF net redemptions.

US rate cuts should see the dollar ease and bring back a macro financial environment that is conducive to investing in gold.

Major drivers: US unemployment; US rates; global central bank buying.

The rates cycle has topped in the US economy, but rates will only come down significantly if a recession looms. Even though we think the probability of a recession is low in the US in 2024 (an election year), the market may start to discount a recession in 2025 well before the year end. The ICE US Dollar Index is looking like forming a death cross at around 100, though the dollar will likely remain above this level as long as there is no recession, but again, dollar weakness may only start when the market starts discounting a recession, which may happen only in 2025. The gold price currently seems to be most influenced by the level of the US dollar, which could remain strong until rates weaken likely in H2 2024. During H1 2024, a low VIX, slowing US inflation, strengthening global economies and lower central bank purchases may put some pressure on the gold price.

Three most important factors affecting the gold price in 2024: the strength of the US dollar; US Treasury rates; geopolitical volatility.

Gold prices will print another new record in 2024 as the Fed cuts interest rates and the global economy slows. The convinced Fed pivot is a Fed policy bias that is targeted to boost growth (rather than respond to disinflation) which will likely occur sooner rather than later. The Fed must maintain independence, but at the same time, earlier interest rate cuts provide enough time lag for easing to boost the real economy into US elections. These surgical rate cuts allow for a slow landing scenario and will boost gold in H1 2024, with upside risks to our base case outweighing the downside ones. The positive feedback loop of a peaked US dollar and peak US real yields against a backdrop of slower global growth, ongoing deglobalisation (and thus ongoing central bank dedollarisation), messy geopolitics, unsustainable global debt paths and a very under-owned investor community ensures gold will return as a safe diversifier, even at these higher prices. The world is simply short on trust and short on havens while the pool of safe havens is shrinking.

Top three drivers: Fed cuts; pace of central bank purchases; sensitivity of physical demand.

We think gold prices will move higher over 2024 on the back of a strong narrative, tempered by some ongoing headwinds. While on paper the eventual rate cut narrative opens up the field for gold to rally even more than we are forecasting, based on some parts of our macro analysis, we think gold is somewhat overpriced already. Additionally, investors are still sitting on the sidelines and consumption (whether consumer or investor) is set to be held back more than otherwise by already elevated gold prices, especially in non-US dollar currencies. Our forecasts assume that gold grinds higher rather than leaps higher. All eyes will likely stick to the Fed and data dependency will likely remain. At points where the rate cut narrative is questioned, we view our low scenario as the floor, and we think that our high is the ceiling unless some major unexpected catalyst materialises.

Three drivers for the gold price: Fed cutting rates; investor interest and flows; geopolitical risks.

Gold traded last year well within the expected range and the new record high even exceeded slightly the predicted high. In 2024, gold has the potential to trade even slightly higher. The major central banks remain the decisive factor. On the one hand, they are the dominant institutions for setting short-term interest rates and thus for the opportunity costs for holding gold compared to other assets.

However, their actions and words also have a stronger influence on the US dollar. While the Fed as well as the ECB are expected to cut interest rates during 2024, financial markets might get surprised from both. The markets are far ahead of the curve with respect to Fed rate cuts. The dot-charts provide a good guidance, but markets bet that the US central bank will cut the Fed Funds target rate twice as much as the dot-charts indicate. Furthermore, the first cut is already priced in for the March FOMC Meeting. On the other hand, inflation is likely to come down faster in the Eurozone during the first quarter of 2024. The PMIs are far below the crucial threshold. Thus, there is a good chance that the ECB will lower its key interest rates before the Fed, which would strengthen the US dollar and weigh on gold.

US inflation is slowing sharply, owing to easing global supply shortages and an expansion in the supply side of the economy. With core inflation likely to reach the 2% inflation target by the middle of the year, we think the Fed will begin to cut interest rates by the end of Q1. Despite a slight pullback at the start of this year in investors’ expectations for interest rate cuts by the US Fed, we think they are mostly priced in. Consequently, any further boosts to the gold price from investment demand will be limited. So while we expect the price to rise over the course of this year, any increase is likely to be small. Moreover, the historically high price of gold is likely to deter any significant increases in physical demand.

The three most important factors impacting the gold price will be: loosening monetary policy in the US; geopolitical risks surrounding tensions in the Middle East; and central bank demand.

Despite the Federal Reserve delivering a progressively more restrictive policy environment in 2023, gold posted a very respectable performance, with prices hitting $2,000+ numerous times. Sharply higher real interest rates along the Treasury curve and a very firm US dollar, which typically spells bad times for the yellow metal, have been offset by strong physical markets. Aggressive central bank buying of late and Asian investor purchases has negated the impact of carry costs resulting from the highest interest rate environment in over two decades. Gold was strong despite a spec move away from long exposure and notable ETF liquidations.

We believe that the combination of an expected Fed dovish pivot in the months to come should prompt traders to grow additional length, and very strong official sector buying will lift prices to a high of $2,200+/oz. Given that the US central bank is very likely to moderate rates before the 2 percent target is reached, and that geopolitical tensions emanating from the Middle East and Eastern Europe will remain elevated, the yellow metal is projected to trade above $2,000/oz for most of the next 12 months.

We expect gold to rally as the market narrative shifts to recession risks, falling real rates and Fed policy easing. We think gold offers investors an attractive way to position as we reach the end of the Fed’s hiking cycle and growth concerns start to take over. Gold should scale new heights in 2024 and 2025, as the US economy falls into a recession, the Fed cuts rates, the US dollar weakens and real yields fall. Investors are not positioned for this, in our view, having unwound allocations as the global economy recovered from the COVID pandemic and as policymakers raised rates to fight inflation.

As the cycle matures and policy pivots, we expect attitudes towards gold to shift. We expect the move higher in gold to be driven by the re-emergence of strategic positioning from investors, underpinned by a continuation of strong official sector purchases and steady fundamental demand.

Geopolitics will define the broad direction of gold markets in 2024. While inflation has cooled off temporarily, it will take a while to get it under control. Likewise, interest rate cuts may also be measured and gradual. The overall trend in gold is expected to be moderately up.

Monetary policy in the US will be key for the gold price this year. Anticipated interest rate cuts in the US and Eurozone could enhance gold’s appeal, as lower yields make non-yielding bullion attractive. With lower interest rates, a weaker dollar is expected, which will also help to support the gold price. India’s robust economic outlook could boost jewellery demand, countering weaker demand in the West and in China. With geopolitical issues adding to economic uncertainty, investment demand is likely to be robust and record gold prices are expected.

Three key factors impacting the gold price in 2024: interest rate trends, anticipated rate cuts in the US and Eurozone leading to lower yields and a stronger appeal for gold; investor behaviour shifts, potential increase in gold ETF inflows and bar and coin demand, influenced by rising prices and changing market sentiments; central bank buying patterns - continued robust buying by central banks, particularly in emerging markets, adding a substantial floor to gold demand.

Lower interest rates are widely expected this year and that will prompt G7 investors, who were gold sellers in ETFs and CME in 2023 due to high interest rates, to become buyers. This will have double bullish impacts as short turns long. The central banks of non-G7 countries will still be eager buyers of gold as dedollarisation is not a one-off trend. Gold is the one asset that both emerging and developed countries can trust. I would expect lower interest rates, geopolitical tensions and dedollarisation to push the gold price still higher in 2024.

Three key drivers of the gold price: Dedollarisation (=central bank buying); FRB’s monetary policy; geopolitical tension.

Three key factors driving the gold price: elections worldwide feeding uncertainty, US election will be an influence all through the year; underlying risks around small-medium banks and industries in the States and China at the very least; fluctuations in geopolitical tensions, notably the Middle East – potential inflationary fall-out as well as political ramifications.

The tailwinds outbid the headwinds. The markets seem finally to be accepting that the Fed means what it says: that bonds have been too emollient. This works against gold. There was, however, a sea-change in the latter part of last year as gold stopped its knee-jerk reactions to the Fed and the bonds, starting its own course on the back of growing uncertainty and conflicts of views.

The banking issues of March to May 2023 were well contained, but the global higher cost of capital is still pressurising the small to mid-sized banks and industries. Meanwhile, tensions in the Middle East are already partially discounted, but remain a key issue.

Wider geopolitical issues revolve around elections this year, with more than 50 countries going to the polls on a regional or national basis. The US election will be influential throughout the year.

A weaker dollar (not interest rate differentials, more a question of political will), banking and geopolitics are expected to hold sway and take gold into a new higher range.

Gold is expected to go higher as the investment demand from central banks and private sectors is expected to continue in 2024. The uncertainties ahead, especially between the West and the rest of the world, make this trend accelerate.

Although it is recently being said that gold moves in line with the rest of the traditional assets, it is still not quite one of the most highly correlated, hence, continued investment demand can be expected.

A rally in the gold price despite the higher interest rates, especially over the last 12 months, gives us an impression that even with a higher interest rate, this metal could move higher. As interest rates are expected go lower, gold can be thought as one of the most favourable assets.

The downside scenario for gold we believe is a less severe economic recession than we currently anticipate, which may cause another period of inflation and so higher interest rates. Also, in the case of a faster pace of tapering by Fed, we may see a large collapse with this metal.

Three most important factors I think will impact on the gold price in 2024: amount of central bank purchases; decoupling of the West and the rest of the world; interest rates.

If 2023 was a year in which economics commanded headlines, then 2024 will likely see rapidly changing political landscapes, with record elections in prospect. For gold though, this is just another uncertainty and the stuff upon which it thrives.

Importantly, 2024 should register the high watermark in US rates with cuts negatively impacting the dollar and by extension, gold, positively. That said, if inflation proves stickier than expected and rate cuts are deferred, this may mitigate against runaway prices.

After strong official sector purchases in 2023, we see the trend maintained, but less so. Conversely, we see good physical offtake and less selling from institutions via the ETF compensating. The approval of the Bitcoin ETF is a negative factor and will take oxygen from the room for gold and with this endorsement, the competition between the asset classes gets real.

In short, we see a similar rising curve for gold to last year, but for different reasons; we see 2024 as a ‘goldilocks year – not too hot and not too cold, with a bias to the upside. Something for bears to ponder. We expect another 14% gain by year end, with gold nudging the $2,300 level.

Three key factors: politics; dollar, rates.

Despite gold’s strong performance in 2023, the silver price closed the year almost flat. The key reason for silver’s lacklustre performance is that a growing number of investors classify it only as an industrial asset and no longer categorise it as a financial instrument. As a result, its main demand driver is still the industrial sector and, consequently, the silver price is more a reflection of the weakening economic situation rather than factors such as geopolitical or financial market influences. Analysing the fundamentals, an unchanged ratio of 50% of the annual silver production being used by the industrial sector was also not supportive of a higher silver price.

With the expectation that demand for solar photovoltaics will continue to rise in 2024, we forecast a stable and slightly higher silver price over the course of 2024. However, continued weak investment demand will remain a headwind for the silver price, especially as some silver investors who have remained loyal to silver over the past few years unfortunately sold their silver holdings in ETFs, bars and coins during 2023 as they lost their interest in the white metal.

Purely in terms of supply against industrial demand, silver is still running a surplus.

The underlying fundamentals are improving, and a pre-investment surplus estimated at four weeks’ industrial demand equivalent last year will shrinking towards two weeks’ demand this year and OTC investors should easily be able to mop that up, and it also is possible that ETP sentiment will change.

This suggests that silver will rekindle its relationship with gold, which has been under some strain recently as silver investors have fought shy of economic concerns and the rate cycle. When gold is trading sideways, silver will probably still underperform, but it should outperform during any bull phases. As a result, our forecast average for silver is 6.5% higher than the 2023 average, compared with a 4% gain for gold. Even so, the differential is lower than in normal times – because these are not, currently, normal times.

Interest rate cuts in the US and in other developed economies will help silver, but the extent to which they are already priced in brings the risk of a pullback if the Fed lowers rates less quickly than expected. Geopolitical and election tensions may also help support silver as a safe haven, with additional retail investment and ETF demand contributing to a further tightening of a market already expected to be in deficit.

As a largely industrial metal, silver will face headwinds from slower economic growth this year, though demand in the solar PV sector, telecoms and vehicle electrification will remain robust. A new US administration could herald a change in environmental priorities, with implications for growth in clean energy applications in the longer term.

Silver will rally alongside gold, with bullish potential hinging on investor participation outweighing some mild contraction in industrial demand. Silver has more upside risk than gold, because 1) it is relatively cheaper versus its past price peaks, 2) it is more elastic to a weaker US dollar environment, 3) it is physically tighter with less readily available stocks, and 4) fundamental deficits are expected throughout this decade. Its high beta characteristic versus gold is attractive in a Fed-induced soft landing. While late cycle dynamics will see likely result in some mild contraction of ~5% in industrial demand from another record high in 2023, retail and investment can more than make up for this shortfall. Silver ETFs have shown they can accumulate ~30-40Moz in a couple weeks.

Overall, after months of being a forgotten asset class, investor focus in precious metals will return as the decline in the US dollar extends once the Fed pivots in 2024.

Silver had a quiet 2023. Recovery in manufacturing across the world has been sluggish. It will take some time for momentum to pick up in manufacturing. Actions on the ground on clean energy and electric mobility will be positive for silver. The silver price is expected to sweep a larger range in 2024 and close moderately higher.

Despite a projected 110Moz annual deficit, concerns surrounding higher-for-longer interest rates, a lack of speculative appetite, weakening physical demand amid Chinese economic weakness, and slowing US growth have kept silver quite weak in 2023.

Since the white metal behaves both as an industrial and a monetary metal, it reacts negatively to elevated interest rates and industrial demand weakness. Investors have little appetite to build long positions when rates are projected to rise or stay at restrictive levels. They also tend to reduce length when the economy is set to slow materially, as this implies less uptake of the white metal by the industrial sector.

However, the pending reversal of hawkish monetary policy should help catalyse more supportive flows in early 2024, after it becomes clear that the Fed and other central banks will pivot to a more dovish monetary policy stance. Once the market is convinced that rates are indeed set to drop and economic recovery is on the horizon, the white metal should get a boost from both the industrial side and rate-driven spec flows, which could see the white metal target $26+/oz toward mid-2024. At that time, lower interest rates, firmer physical investment, ETP purchases and industrial demand will work together to tighten market conditions.

The lack of mining capacity, its more intensive use in electric vehicles, and growing demand for solar panels as the world transitions into a net-zero economy will also serve as upside catalysts for the white metal.

We think silver is well positioned to see decent price gains ahead, given it typically outperforms in an environment of rising gold prices and accommodative monetary policy. Silver’s tight market fundamentals and its long-term demand prospects from green technologies are likely to become more compelling for investors under this environment.

Although silver industrial demand faces downside risks against a weaker economic backdrop, we think any negative price impact will be outweighed by the lift from policy easing and spillover interest from gold. Given silver’s underperformance versus gold in 2023, it is likely to attract interest from investors who are looking for alternative ways to position for gold upside.

We see a positive year ahead for platinum with an anticipated deficit of 350Koz in 2024, constituting 5% of the total platinum demand for the year. With this, above-ground stocks are set to decline to a four-year low, which again suggests the price risk is to the upside.

Mine supply is forecast to grow by 3% as the South African smelters have completed their scheduled maintenance, but there remain risks from the ongoing risk of electricity shortages, coupled with restructuring or possible closing of economically marginal operations.

Substitution of palladium with platinum in the auto sector is expected to continue not only with the price differential, but because of the inherent political risk associated with palladium, which is sourced primarily from Russia. We see a more modest increase in demand from the auto sector with fewer ICE vehicles being built, but with the impact moderated by tighter emissions legislation.

Besides the movements of the US dollar, the demand from the automotive sector remains a crucial factor for the PGMs. Last year, platinum was expected to remain well supported in the short run, as the production of cars with a combustion engine still dominates. In the first half, this was certainly the case. But in the second six months of 2023, platinum demand was weak and prices eased.

Business expectations in the German car industry are at their lowest point since October 2022. In China, the association of automobile manufacturers does not provide data on car production and sales after August last year on its English website. This points to low demand for new cars, even those with combustion engines. In addition, e-vehicles got more attractive again as energy prices came down heavily. Thus, prices are more likely to remain in a trading range similar to the one in 2023.

Much like in 2023, platinum is expected to trade range-bound throughout 2024. Platinum should benefit from its third consecutive annual deficit in 2024. However, abundant above-ground stocks, waning Chinese imports at higher prices and initially a declining gold price will weigh on the metal. A lower palladium price could also undermine future autocatalyst substitution efforts.

By contrast, while Chinese imports have slowed from their near-record pace in 2021 and 2022, their purchasing as the price dips remains persistent, further reinforcing platinum’s lower bound. The PGM miners’ basket price also supports this, seeing platinum return to greater importance. At the current basket price, over half of global mine supply is potentially operating uneconomically. Any fall in the platinum price would put further pressure on primary supply, leading to more cuts as miners may place shafts on care and maintenance.

On top of this, platinum’s rangebound behaviour has become a self-fulfilling prophecy with investors, with the net managed money position frequently oscillating between long and short in line with the price. All of this brings us to forecast an annual average platinum price of $1,000 for this year, trading between $870 and $1,150, a 3% uplift on 2023’s average.

Platinum is characterised by a reasonably solid longer-term demand outlook, but with potential volatility from the supply side. Eskom problems in South Africa persist and although the miners have continued mine production, Work-in-Progress inventories have been building. Between them, Amplats and Impala may be holding as much as half a million ounces (including Zimbabwe material) by mid-year and this is not expected to come into the market until next year at the earliest. If load-shedding reaches the point where mining operations have to be suspended, then the forward curve is likely to be affected rather than the spot price.

The market is running deficits and while there is above-ground inventory, this will be supportive. The fundamentals suggest that the platinum price will regain a premium over palladium this year, probably around mid-year if not before.

While averaging some two percent above 2022 levels, for the most part, platinum performed poorly last year. Demand concerns prompted specs to lighten their long exposure. This occurred despite significant headwinds associated with slowing global supply of recycled product, sanctions targeting Russian supply and weak growth coming from the South African mining sector. This kept prices below the $1,000/oz mark for most of the last 12 months.

With global economic headwinds blowing away, the coming year should see firmer demand from the autocatalyst sector, as automakers restock for the pending improvement to the auto sector. The recent bad press surrounding EVs suggests that hybrids, which have strong PGM loadings, may get a disproportionate lift from a macro turnaround. Substitution away from palladium for platinum in autocatalyst units and the continued implementation of stricter pollution standards should also be important drivers helping platinum recover. Indeed, we project that platinum will increasingly come closer to palladium prices, to average $1,025/oz. The upside tilt should be reinforced by firmer spec interest, as the precious metals complex benefits from lower rates, and as investor interest focuses on the metal’s association with the extraction and the use of hydrogen in power cells.

We expect the platinum market to continue tightening in the years ahead as the ongoing substitution away from palladium to platinum in autocatalysts continues. We think this should result in a gradual lift in prices, as the market works through existing inventories. As the price differential between platinum and palladium narrows, and eventually shifts into a premium in favour of platinum, there is a risk that the pace of substitution between the two metals could slow down in the medium term. That said, the bar is high for automakers to make the switch. Platinum supply should recover, but from a low base.

There is continued risk of supply shortfalls, which could trigger interim spikes in prices. South Africa, which accounts for around 70% of global platinum mine supply, continues to face challenges with power shortages and the potential for operational disappointments.

Platinum supplies will be constrained by restructuring at South African and North American mining assets in the light of low prevailing PGM basket prices, plus there could be further disruption to refined metal output in the form of operational, labour and electricity supply issues. These factors bring upside risk to platinum prices and the threat of further market tightening.

Limited growth in car sales amid the threat of recession will restrict platinum demand in autocatalysts, while the incentive to substitute palladium with platinum may diminish as the metals approach price parity. Demand from other industrial applications will remain positive, with growth from a low base in the hydrogen industry. Investment demand will once again be the key factor in the expected market deficit, with lower interest rates helping stimulate new investment.

Platinum is expected to post another deficit (including investment demand) in 2024 which should remain quite similar to the deficit in 2023 of ~500Koz. Demand continues to be well supported by both automotive (higher light-duty vehicle sales, the acceleration of hybrids and continued substitution of platinum for palladium in gasoline autocatalysts, despite prices nearing parity) and industrial (glass and chemical) demand. A soft-landing outlook should marginally crimp demand, but akin to the thinking in silver, higher investment demand (for high beta precious products) should more than compensate for lower industrial/auto demand. The threat of larger than expected supply misses due to mine closures (especially at PA-rich North American mines and cuts at older Western Bushveld mines) AND secondary supply, which should remain weak, will support prices into 2024.

We are much more constructive about platinum (and PGMs) post-recession, where upside prices remain contingent on gold remaining in a bull market trend, the ignition of the macro recovery and the convincing pivot of fundamental balances from multi-year surpluses to multi-year deficits.

It’s a sad state of affairs when one of the most bullish factors for palladium is that the market seems to be almost universally bearish – leaving the upside open to a bear trap or short covering rally. But that would be temporary relief.

From a price peak of over $3,400 less than two years ago, palladium looks set to slide further, aided by scrap/recycling, generating a swing from a 200Koz deficit last year to a 300Koz surplus in 2024. And the bears are swimming with the tide. With the number of ICE vehicles in terminal decline and with platinum determined to take a larger proportion of the available pie, palladium remains plagued with large above-ground stocks (about 12Moz) and very few existing or new applications with the potential to consume it.

While palladium will likely benefit from smelter maintenance in Russia, the price is such that an estimated 25% of producers are doing so at a loss, which may well prompt supply cuts, reinforcing the mantra in commodities that the best thing for price weakness is price weakness. This may arrest the decline somewhat.

Structural headwinds in the form of ongoing substitution in gasoline vehicles (platinum was relatively cheaper, more readily available and less volatile than palladium), the recent rising market share of EVs (although US and European EV penetration rates have plateaued) and an expected surge in secondary supplies due to higher auto recycling, puts palladium on a path of rising surpluses. Still, palladium is expected to post another large deficit of ~-800Koz this year in the face of rising supply risks into 2024. There remains a disconnect between prices (which are extremely forward-looking and thus significantly lower versus recent peaks) and the current fundamentals (ongoing deficits with rising supply risks).

The outlook should remain fragile and unconvincing into a soft-landing backdrop. However, any incremental shift higher in demand or a quicker fall in supply will create tactical bullish opportunities and continued volatile trading in 2024, supporting our rather wide high-low range. That may stem from secondary supplies (which should remain weak into 2024 as recession fears constrain scrappage rates), the greater threat of closures of PA-rich mines and a sustained EV sales downturn, all of which remain underpriced.

The platinum-palladium autocatalyst substitution cycle is expected to conclude in roughly mid-2025, by which stage, platinum is expected to be once again at a solid premium to palladium. While the baseline long-term outlook for palladium remains ominous as net-zero carbon commands the change in the vehicle fleet, industrial research points toward fresh palladium uses, but for now at least, this is still a plaster covering a wound.

A key change in the market dynamics is that while palladium is notionally a mine by-product (platinum or nickel) and therefore subject to the economics of those two metals, the palladium and rhodium prices have fallen so far that the PGM basket price in South Africa is now threatening output from some of those operations. This won’t redress the balance but may change market sentiment in the short term.

It is probable that the precipitous fall of the past two years has now more or less discounted the long-term difficulties. Outright shorts on NYMEX have been relentless and there will almost certainly be at least one sharp short covering rally this year, but that is the only bright spot on the price’s horizon.

Palladium will continue to trade in a fairly wide range with a high degree of volatility caused by uncertainties on the primary supply side, including closures/rationalisations as well as operational stoppages. Supply of recycled material will be impacted by sluggish global new car sales and therefore less scrappage, though periods of high prices could bring more material back to refineries and move the market towards surplus.

Despite a mixed outlook for the automotive sector, expanding domestic car sales in China and growth in Chinese exports will help palladium demand. Substitution with platinum may ease as price parity approaches, and while electrification still presents a longer-term threat to palladium, its impact in 2024 may be lessened by growth in hybrid powertrains and challenges to pure battery electric vehicle adoption.

In an unusual development, palladium has greatly underperformed platinum in 2023. It averaged some 37 percent below the levels recorded in the previous 12 months, meanwhile platinum was 2 percent higher. Like platinum, it was depressed by expectations of a sharp decline in automotive demand amid rising rates, which convinced Western world producers to source less of the metal, and as China’s expected post-COVID auto demand jump did not materialise as expected. The metal is intensively used in China, which posted a lacklustre recovery following the reopening after the previous year’s strict COVID lockdowns. The redesign of autocatalysts to use more platinum also played a role in palladium’s very poor performance. In this context, speculators built a behemoth net short position which notably weighed on prices over the last year.

Demand should post a rebound later in 2024, once China’s economy impacts further and Western macro headwinds stop blowing as rates moderate. Considering that the sector will continue to face constraints on the mining side and there will likely be a reduced availability of recycled material, following weaker auto sales, the tighter market should see palladium recover some of its previous glory. The metal is expected to trend toward $1,175/oz by year end. Higher loadings associated with stricter air quality rules across the world will also contribute to the move higher, whereas risks to primary and secondary supply also appear to be noteworthy upside catalysts.

Despite an exceptional supply-driven deficit in 2023, the palladium price still fell 35% from the start till the close of the year. In 2024, we expect a shallower but still sizeable deficit, the last before the market shifts to structural surpluses for some years to come. The deficit this year owes much to an only very modest recovery in supply, due to improvements in secondary supply. On the demand side, we forecast a modest decline as petrol- and diesel-powered vehicle production has already seen its post-COVID peak in 2023 (78 million units), falling 2% this year to 77 million. From a fundamental perspective, a deficit market should benefit the price. However, record levels of investor shorting ahead of future surpluses will offset the inherent upward price pressure.

Additionally, it is important to note that above-ground stocks of palladium remain abundant. In Western markets, inventories have been rising in recent years due to stock-building during the chip shortage, as minimum quantities from mine supply contracts outstripped chip-impaired production. Additionally, geopolitical risk concerns saw further accumulation to ensure the security of supply. As such, we expect the 2024 annual average will be $1,100, an 18% decline y/y, reaching fresh lows of $850 in the second half.

The long-term outlook for palladium remains bearish, with the ongoing transition towards BEVs continuing to weigh on the market. In spite of this, we think the sharp decline in 2023 was overdone, dominated by short positions. We think there is scope for an interim price recovery before the market resumes its journey lower.

Near-term upside price risks could come from mine supply disruptions amid ongoing uncertainties out of Russia, South Africa and North America. We expect the pace of the increase in BEV penetration rates to be slower than we previously expected.

China’s passenger vehicle inventories are now at normal levels and auto production growth in the coming quarters should support palladium demand. More stringent China 6B emissions legislation additionally implies higher palladium loadings. This could offer palladium temporary relief from the significant downward price pressure. However, it is unlikely to alter palladium’s long-term downward demand and price trajectory.