LAWRIE WILLIAMS: 2020 Forecasts – gold, silver, pgms and geopolitics

It’s easy to set oneself up for a major egg-on-face moment, and forecasting what may happen in the year ahead represents a great opportunity for so doing.  But nevertheless here goes and here are my predictions for 2020.  We’ll see which of these actually happen in the year ahead - or not, whichever the case may be.  I probably have these in the wrong order in the title as the key to all of these is probably geopolitics which will influence all of these – and more.

So we’ll start with geopolitics, and the key elements almost certainly will depend on President Trump’s decisions in the first half of the year and his re-election chances in H2 as well as some key foreign policy moves.  A minor player, as far as Europe is concerned, could be progress or otherwise in the Brexit negotiations due, according to UK Prime Minister Johnson, for completion by the end of 2020.  But at the moment it is Trump, the U.S. economy and the trade negotiations with China, which are principally driving the rise, or fall, in precious metals prices.

President Trump is at heart probably a non-interventionist and he already seems to have moved towards withdrawing most U.S. troops from the Syrian domestic conflict allowing Russia to now play the lead foreign power role in what could yet be another almost unending civil war.  In so doing he has seemingly abandoned the Americans’ Kurdish allies – but then expediency nearly always seems to override what he obviously sees as what was a temporary alliance of mutual necessity.

How long before there are similar moves to further cut back U.S. involvement in Iraq and Afghanistan – both looking like unwinnable conflicts.  Arguably the average Iraqi was far better off under the perhaps despotic Saddam Hussein – the Iraq war would probably not have happened if Saddam had not misjudged his rhetoric over weapons of mass destruction leading to the since proven false intelligence that these nonexistent weapons posed a threat to Israel and the West.

It is a moot point whether the Afghan person in the street was perhaps living in a more stable environment under Taliban rule than in a West-imposed democracy.  Some nations may not yet be ready for true democratic rule and the U.S.’s crusade to impose democratic rule worldwide is divisive and perhaps misjudged and has maybe led to more global instability than in it has solved inherent localised domestic political problems.

That brings us to the Far East, and notably China and North Korea.  The on-off U.S./China trade deal is an ever-ongoing factor in the path of the gold price in particular.  While both sides have trumpeted a Phase 1 deal which seems to be leading to the U.S. cutting back on some of its proposed tariff impositions and China promising to buy what looks to be an unattainable volume of U.S. agricultural products in return, a full-on trade deal looks to be as far away as ever with too many major differences in principle between the two sides.  Tariffs on Chinese goods may be with us for some time yet!  Politically inspired claimed solutions and impasses will likely move the gold price up and down in the meantime, but we suspect little major will be achieved at least before the U.S. Presidential election in November, and negotiations may well continue to drag on afterwards.

North Korea remains a U.S. stumbling block.  One suspects that President Kim would like to see an end to U.S.-imposed sanctions and may be willing to compromise on de-nuclearisation, but if he apparently does so can we believe him?  The North Korean state is perfectly capable of saying one thing, and doing the opposite, without anyone being any the wiser.  A North Korea take-over by China, or reunification with the South, might be an answer here but we do not see either as likely to happen in the short to medium term.

The South China Sea and the future of Hong Kong remain continuing possible flashpoints.  The U.S. seems keen to keep the sea routes in the former open and outside China’s direct control, despite the latter’s construction of island bases – and declaration of sovereignty around them – which makes potential naval clashes a distinct possibility.  On Hong Kong U.S. Congress’s overt support for the dissenters raises political interference claims which could further sour relations between the two mega-powers.  China is probably not yet ready for a military conflict with the U.S., but it may not be long before its available weaponry matches, or even exceeds, that of the U.S. which could have an effect on the balance of power between the two nations and lead to an altogether new phase in U.S.-China relations.

Re the forthcoming U.S. Presidential election – failing a collapse in the U.S. economy and markets, which the U.S. Fed has been successful in warding off so far – we suspect Trump will be re-elected given the Democrats are in such current disarray.  The U.S. is definitely not ready for some of the ‘socialist’ policies espoused by some leading Democratic leadership contenders.  Arguably the Democratic front runner – Joe Biden – is too old for the job and may be brought down anyway by continuing innuendo regarding claimed Ukraine corruption.  The Trump impeachment is likely going nowhere and in any case would almost certainly be up against a total roadblock in the Republican-dominated Senate.  One shouldn’t be too surprised if Trump again finds himself up against Hillary Clinton in the final run off and, if so, will likely achieve a similar result to last time around.

As to the U.S. economy: As noted above the Federal Reserve has been pretty adept at staving off what we see as an equities collapse and a U.S. recession so far.  Although both are inevitable in our view they may yet still not happen in 2020 – our prognosis has somewhat changed in this respect.  But we do not anticipate continuing equity value growth.  The tech sector, which has been the market’s driving force, is looking overbought.  The dollar may remain fairly stable and, although we see precious metals rising over the year we do not anticipate a spectacular increase.  Some normally cautious bank analysts are looking for an end-2020 gold price of around $1,600 and we would not disagree substantially with that particular forecast.

As to the other precious metals, we do see silver performing better than gold in percentage terms in 2020 – but not hugely so.  But then we did so last year only to see silver to continue its underperformance.   Palladium may have a little further to run in the first half of the year - fundamentals are strong, but at more than double the platinum price it may well have gone too far too fast and looks as though it may be in bubble territory.  We do see the likelihood of reverse substitution (of platinum for palladium) beginning to exert itself in the second half of the year so our precious metals pick for 2020 has to be platinum which probably is the better long term prospect anyway. 

So where do we see precious metals in price terms at the end of 2020. Gold at around $1,625 (up around 10%), silver at $19 (up around 12%), platinum at $1,150 (up over 20%) and palladium at $2,100 (up around 8% although it may well peak at around $2,400 mid-year).  U.S. equities we see as pretty flat over the full year, although we do see positive things for the UK’s FTSE index.  We see the dollar index trending slightly lower by the year end at around 96.

In Europe final Brexit negotiations may run into road blocks, but it is in all countries’ interests to now see a satisfactory settlement.  There are already indications that the EU’s two biggest players in particular, Germany and France, would like to see a rapid end to the current impasse and may be scared of the U.K. moving too close to the U.S. in replacing direct trade with the U.K. which is pretty vital to both their economies.  Pragmatism may win out here – at least this writer hopes so! 

As for the scale of the Conservative general election victory, which makes the UK leaving the European Union next month almost a foregone conclusion, the pundits are being proved wrong yet again!  Now contrary to predictions of the likely effects of Brexit on the UK economy we are seeing the stock market and the pound rise, rather than collapse.  However things could change if the negotiations over the next year look to be leading to a ‘no-deal’ solution rather than an amicable trade agreement.

So to recap, here is a table showing current values for some key indicators and where we see them in a year’s time for easy reference (all figures rounded):

 

Current (US$)

December 2020 (Est)

% Change

Gold Price

$1,480

$1,625

+10%

Silver Price

$17

$19

+12%

Platinum Price

$930

$1,150

+24%

Palladium Price

$1,950

$2,100

+8%

DJIA

28,000

29,000

+4%

S&P 500

3,200

3,300

+3%

FTSE 100

7,500

8,375

+12%

DAX

13,300

14,200

+7%

Nikkei

24,000

26,000

+8%

US Dollar Index

97

96

-1%

This is the season for annual predictions and it will be interesting to see how the above compare with those from perhaps more qualified pundits.  We suspect the biggest likely difference will be on the palladium price prediction, but as we noted in an earlier article (PALLADIUM 2X PLATINUM PRICE. HOW LONG CAN THAT BE SUSTAINED?) we feel palladium has risen too far too fast vis-a-vis platinum which could lead to reverse substitution in the former’s largest market as the principal exhaust emission catalyst for petrol (gasoline) driven internal combustion engines.

For the record, writing at the beginning of January this year my precious metals price predictions for end-2019 were as follows: Gold $1,400, Silver $20, Platinum $1,000 and palladium $1,350.  Silver was obviously a particularly bad call, and I underestimated palladium’s price progress, but gold and platinum were within a reasonable percentage of the year to date figures.  I hope to do better in the current year.  As last year my precious metals price predictions could be seen as conservative – but better safe than sorry.   As always geopolitical events could make these predictions virtually obsolete overnight.

17 Dec 2019

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London - recently described as the World’s No. 2 University (after MIT).

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