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LAWRIE WILLIAMS: Precious metals price predictions for 2018 – gold, silver, pgms

It’s the time of year when foolish analysts and commentators try and predict various outcomes for the year ahead.  This foolish commentator is no exception and is about to put his price predictions for where the gold, silver, platinum and palladium prices will be at this time next year on record.  He probably can’t do any worse than many far more qualified observers and it is thus an interesting exercise in trying to outguess his peers for markets are notoriously fickle so perhaps if one just gets the trend correct that will b e a good result. 

Shortly the London Bullion Market Association (LBMA) will publish similar predictions from a panel of so-called experts – Sharps Pixley’s MD, Rross Norman, will undoubtedly be among these (he has proved to be among the more accurate predictors in the past) so it will be interesting to see how one does against one’s boss – added spice to the contest.

For the record, the LBMA panel is asked to predict low, average and high prices for the year for the four precious metals and will publish its overall results for 2017, and predictions for 2018, some time next month.

I will just look at where I think the precious metals prices will be at this time in 2018 so my figures will not be directly comparable with the LBMA panel members’ ones, and I will give my reasons for predicting the prices chosen.

Gold:  Definitely 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 list.  My prediction for the gold price at this time next year is a conservative U$1,425 – around 10%, coincidentally a somewhat similar increase to the current year. At the moment I look at gold increasing in the year ahead with Asian demand staying strong, global production weakening marginally in 2018 and the possibility of the dollar index continuing to decline.  I would also expect bitcoin and general equities to come off their highs, perhaps drastically so, which could drive investment back into precious metals.  If I am out in my prediction I would expect the final figure to be on the upside.  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.

Silver: The silver price tends to move in the same direction as gold, but in a more exaggerated manner – 2017 was a little anomalous in this respect.  Thus I would expect the gold:silver ratio (the amount of silver it would take to buy an ounce of gold) to come down to around 70.  Based on my gold price prediction this would put the silver price at the year end at around $20.50.

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

Platinum used to be at 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 big price gap between platinum and palladium in favour of the former, but because of their similar properties considerable research was undertaken for substituting 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 different 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 and there is now the real prospect of reverse substitution occurring with exhaust cleaning system manufacturers returning to platinum, thus leading to increasing the price of platinum at palladium’s expense.   This won’t happen immediately but the longer the palladium price stays above that of platinum the bigger the incentive for manufacturers to switch back. 

Thus we see the palladium price retaining its price premium over platinum until perhaps the mid-year and then the platinum price taking a big swing upwards and palladium coming back sharply.  So I reckon the platinum price will advance by the end of the year and palladium fall back.  Indeed palladium will need to fall back quite sharply in price if the reverse substitution occurs, as I think it will, and then it will struggle to regain its position as the dominant catalytic material in petrol driven car exhausts.  Therefore I anticipate that the platinum price will rise – perhaps more strongly in the second half of the year reaching a little over $1,100 by the year end and palladium start to fall back sharply from around the mid year and ending 2018 down at say around $875.

So there you have my precious metals price predictions for the year ahead.  This does leave me hostage to fortune.  There are many geopolitical or geo-economic events likely to happen during the year which could make any predictions decidedly uncertain, but for what they are worth those are my best guesses at the present time as to what may happen in the year ahead.  Time will tell!

28 Dec 2017

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

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