Rhona O'Connell

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.

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.

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.

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.