Joni Teves

While no bull run lasts forever, the foundations of gold’s ascent - particularly the structural shift in private and official sector demand - suggest that price risks remain skewed to the upside over the next 12 months in the face of ongoing global uncertainty. Gold's strong performance, in our view, is a reflection of a variety of concerns among a growing number of market participants seeking long-term diversification of portfolios. Gold remains under-owned relative to total assets and we believe there's room for allocations to keep rising.

We are bullish silver, largely due to our expectation that gold should continue to make new highs in the coming year. Silver is poised to attract considerable attention as investors seek to diversify portfolios and turn to hard assets. Its lower price point makes it particularly accessible to a wider range of investors. But beyond investor flows, understanding silver’s supply and demand fundamentals will be crucial in gauging silver’s upside potential. Market deficits and declining inventories imply that the market becomes increasingly vulnerable to periods of strong investment demand, which in turn could lead to bouts of liquidity tightness.

Though the trajectory for supply and demand fundamentals are broadly unchanged, the implications of tight market conditions and increased investor participation on spot prices are larger than expected. This implies a higher and wider trading range for the year ahead, albeit with prices tapering down towards the end of the year. Upside price risks come from tightening market conditions in the face of potential supply shocks or resurgent demand. Seasonality and periods of consolidation should provide investors with better entry levels to position for the resumption of the long-term price uptrend.

A recalibration of palladium’s supply and demand fundamentals has been taking place in the last couple years, as market participants adjust to new realities and shifting expectations regarding the vehicle electrification trend. Over the next 12 months we see upside risks for palladium prices. Nevertheless, we don’t think this alters the long-term fundamental narrative of rising surpluses ahead. This implies that palladium prices should revert to being driven more by fundamentals later in the year, facing headwinds and eventually resuming a modest downtrend further out.