James Steel

The near-term market momentum for gold appears higher. Prices may ease from current high levels later in 2024 if robust Fed rate cuts of the magnitude anticipated by the financial markets do not fully materialise this year. Gold is historically sensitive to real rates, and while there has been a significant disconnect in this relationship, we expect real rates to weigh on gold as 2024 unfolds. A US dollar rebound can also weigh on gold. High prices are eroding underlying physical demand, notably in price-sensitive economies, leaving increasingly greater levels of bullion to be absorbed by the investment market. This may ultimately weigh on prices. Geopolitical risks, with a record number of elections scheduled for this year, and likely continued strong central bank buying will keep the bullion well supported however. Mine output is due to rise and recycling to increase at these high prices, thus adding to supply.

Silver prices will likely trend higher this year and we expect the market to be volatile, possibly supported by historically high gold prices. On the supply side, increased mine supply and likely increases in recycling will assure the market of adequate supply. Industrial demand will likely remain steady for many industrial applications and notably strong for PV and environmental and new technologies. The possibility of a stronger US dollar and more moderate economic growth may restrain other components of industrial demand and help curb rallies. Silver coins and bars may also be attractive to price-sensitive buyers who may be priced out of the gold market, this should help put a floor on price declines. Geopolitical risks may also be supportive.

Platinum is likely to trade in a wide volatile range this year. Auto demand should continue to rise sharply on increased substitution for more expensive palladium and the continued recovery in vehicle production globally, but we expect this to be partially offset by increases in auto recycling and EV sales. Jewellery demand is also likely to rise, but from low levels. The outlook for other industrial demand sources appears positive as new applications for platinum grow, notably environmental and pollution control. We expect the structural market deficit of 2023 to continue at a similar level in 2024. Mine supply may be topped by the release of work-in-progress inventory, but generally speaking, mine supply will be tight as the industry copes with obstacles including inadequate power supply in South Africa and the increasing challenge of low prices.

Palladium fell in 2023, despite an estimated supply/demand deficit. A narrower deficit is likely to persist this year and should lend prices some support. Palladium faces ongoing demand challenges, notably from the auto industry as palladium is substituted with platinum and EVs continue to win market share. However, any near moderation in BEV expansion may work slightly to palladium’s favour. Mine supply growth is likely to be modest and we believe palladium has some upside as it appears fundamentally undervalued. The release of strategic stocks by OEMs helps explain price weakness, but this supply source should wane going forward. The market is highly vulnerable to short covering on the CME, as well as Russian supply disruptions, although to date, Russian material continues to reach the markets and a disruption from this source looks unlikely. Like platinum, low prices create longer structural problems for producers, which may inhibit output.