LAWRIE WILLIAMS: Precious metals price predictions 2019

Predicting precious metals prices for the year ahead can be an invidious task and I have to say that, although I considered my guesstimates for 2018 made a year ago as fairly conservative they were nearly all out by an order of magnitude in the event.  My only consolation, perhaps, is that they were no more so than those of most other precious metals professional analysts and observers.  

In the event, as the year played out to the full, gold at least outperformed equity markets by being almost flat over the full year despite underperforming general stocks for much of the period.  Equities, after performing well earlier on, came down with a bit of a bang over the final few weeks of the year and long term gold holders will have done better than those who held on to their general stocks.

My one prediction which turned out to be very accurate was that for bitcoin - not a precious metal at all - which I predicted would come down very sharply, as it did.  I was also looking for a sharp fall in general equities, but it took the final few weeks of the year for this to happen - prior to which they had performed fairly positively.  Equities appear to have opened the New Year sharply down in Asian and early European trading too

But herewith my best guesses for precious metals performance in the current year.  In general the projections for gold and silver are much the same as those I made a year ago - but perhaps a little more conservative.  OK, my timing was wrong a year ago but I see many of the factors likely to drive prices in the year ahead as actually being much the same. Let’s hope I am more accurate in my guesstimates this time around.

In general in 2018 precious metals had a fairly dismal year, with the exception of palladium and for much of the year, after a promising first quarter, were strongly outperformed by equities.  But in the final few weeks of 2018, equities came off very sharply and gold holders did rather better with the yellow metal coming off its lows.  As I pointed out in a previous article here, the strong dollar meant that gold actually performed even better - indeed positively - over the year in most countries other than the U.S.A. and with equities declining even more in most other countries than in the U.S. gold did indeed work rather well as a safe haven - as it is supposed to.  Some of the final figures and percentage changes over the full year are noted in the table below, but these figures are in U.S. dollars and with the U.S. dollar index (DXY) rising quite sharply (around 5%) over the full year gold actually increased in value in many other currencies which made it an even better performer in these nations.

Metal Price or Index Level

Price/Level 1/1/2018

Price/Level 1/1/2019

% Change

Gold (US$)

$1,306

$1,282

-1.8%

Silver (US$)

$17.06

$15.47

-9.3%

Platinum (US$)

$947

$794

-16.2%

Palladium (US$)

$1,087

$1,252

+15.2%

Dow Jones Industrial

24,824

23,327

-6.0%

S&P 500

2,696

2,507

-7.0%

NASDAQ

7,007

6,635

-5.3%

Nikkei

23,506

20,015

-14.9%

DAX

12,871

10,559

-18.0%

FTSE 100

7,648

6,728

-12.0%

Bitcoin

$13,445

$3,717

-72.4%

Gold:  The most significant of the precious metals being covered given that where gold goes the others tend to follow – more or less – despite the fact that industrial demand becomes more and more significant as one moves through the precious metals list.  My prediction for the gold price at this time next year is a conservative US$1,400 – up a little over 10%.   Thus I look to the gold price increasing in the year ahead - it seems to have started out positively although from a slightly lower level than a year ago - with Asian demand staying reasonably strong, global production weakening marginally - or certainly not rising to any significant extent - and the possibility of the dollar index starting to decline again.  I would also expect bitcoin and general equities to come back further, although there could be an interim bounce back in equities.  If this prediction is correct, over the year it could drive investment back into gold and silver in particular in their traditional safe haven roles. 

Already gold is beginning to move up after the Christmas holiday and the early part of the year tends to see strength in the yellow metal's price.  A much-anticipated move by the Fed to diminish its proposed tightening programme could further boost gold if it should come about as could trials and tribulations ahead for President Trump with the Democrats taking control of the House of Representatives.  There are still a number of potential flashpoints around the world which could increase global uncertainty and drive the gold, and other precious metals, prices higher over the year and there are always ‘unknown unknowns’ out there which could also have an impact.

Silver: The silver price tends to move in the same direction as gold, but in a more exaggerated manner. The metal performed considerably worse than its yellow sibling in 2018 ending the year down around 9%.  However, alongside gold’s recent rise the gold:silver ratio (the amount of silver it would take to buy an ounce of gold) has started to come down already from around 86 and I anticipate it will fall further, perhaps to around 70.  Based on my gold price prediction this would put the silver price at the year end at around $20 flat.  That may be an optimistic price level but if gold does have a bit of a run then silver should start to play catch-up after a dismal couple of years.

PGMs: Platinum group metals (pgms) should really be classified as industrial rather than precious metals, and their price performance has elements of both – but they are perhaps more prone to industrial supply/demand elements in their price patterns than gold and silver. 

Platinum used to command a higher price level than gold – and the price differential was initially enhanced when platinum gained a big demand element in the autocatalyst market.  At that time there was a large price gap between platinum and palladium in favour of the former, but because of their similar properties considerable research was undertaken for substituting the then much cheaper palladium for platinum in auto exhaust cleaning systems.  This was successful for petrol (gasoline) driven internal combustion engines – the dominant sector of the car industry, but not for diesel engines where platinum catalysts still reign supreme. 

For both platinum and palladium demand tended to exceed supply, but recently diesel engines have fallen out of favour in the automobile market due to pollution concerns (and also the VW scandal where it was shown that diesel driven cars were being fitted with software to circumvent exhaust composition testing) and platinum demand suffered while palladium demand increased as purchasers returned to petrol-driven vehicles.  In recent months supply/demand factors in favour of palladium have driven the price well above that of its sister pgm.  We did think that palladium demand might be adversely affected by possible moves to substitute now less costly platinum for palladium but this hasn’t occurred and doesn’t look like doing so unless the price differential becomes even greater.

In this respect we expect both pgms to track gold upwards through the year with the palladium price perhaps exceeding that for gold from time to time, but we don’t anticipate this being more than a temporary phenomenon.  Thus we expect palladium to end the year at around $1,350 and platinum perhaps at $1,000. Longer term, though, one should perhaps be wary of pgms, particularly palladium, should electric vehicles start to gain a substantial market share once they likely will once battery technology continues to improve making range anxiety and charging speed problems reduce in importance.

So overall we do anticipate precious metals having a positive year in 2019, with equities perhaps struggling and bitcoin continuing on its downwards path.  The more equities struggle the greater the chances of gold and silver picking up momentum as safe haven asset classes as the big banks and institutions become increasingly wary of equities, although if the latter do really crash this could also be negative for precious metals as funds and institutions need to preserve liquidity by selling strong assets like gold and silver to stay afloat.  But if this happens it is likely to only prove to be a temporary setback.

 

02 Jan 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).

e: lawrie.williams@sharpspixley.com