Sharps Pixley 2012 Precious Metals Forecast
GOLD Hi : $2100 Lo : $1590 Average : $1765
Black swan events are by nature high-impact, hard to predict and beyond the realm of expectations. By that reckoning financial markets are awash with them and forecasting for gold in this environment is treacherous. Never has forecasting been so difficult - gold's fortunes are primarily linked to those of the dollar and the Euro and by extension to decisions made by politicians.
Fundamentally gold remains a good bet - the market is supply constrained and demand in Asia remains robust. As such gold has a strong underpinning. However the 'economic premium' in the gold price may remain volatile, reflecting increased uncertainty and heightened anxiety during H1. On the negative side a firmer dollar (in election year) could provide a drag on runaway prices.
In his book "Black Swan Events" Nassim Taleb argues against trying to predict the largely unpredictable and recommends building "robustness" into your portfolio. In that regard - gold should continue to benefit from solid investment demand as the difficult economic themes of the last few year darken in H1 before brightening in H2. We forecast an average gold price of $1765.
SILVER Hi : $50.00 Lo : $20.00 Average : $37.35
As with gold, we expect heightened price volatility for silver in 2012 - but more so, with investors seeing silver as a leveraged play on gold. This in part reflects heightened political and economic uncertainty which plays havoc with the commodities markets. We expect to see silver holding robust interest amongst the speculator community and gaining in respect amongst the investor community with a tightening market justifying prices well above the $20 level.
However, slower global industrial output coupled with a firm US dollar in H1 2012 should provide a drag on runaway silver prices - although we see the possibility of a brief price spike based around difficult geopolitical concerns. Should economic conditions prove less difficult than feared in H2, then there are grounds for saying that silver could benefit as a recovery stock of sorts based upon its good industrial applications. So for silver its a case of heads or tails / we win really.
PLATINUM Hi : $2120 Lo : $1400 Average : $1822
Since 1970 platinum typically commands a 30% premium over gold - currently platinum is trading at a significant discount reflecting weak global industrial output and modest investor interest - meanwhile the supply pipe line remains thin and with speculator interest on the lows, a short covering rally is a distinct possibility. In short, we believe platinum prices are depressed and reflect an expectation of ongoing and deepening economic stagnation - this explains why it is not trading at well over the $2000 level. That said, we see the possibility of significant platinum price gains on South African production shortfalls, on improving investor sentiment and on re-building of physical platinum stocks amongst industrial clients - in advance of a recovery on the economy in late 2012. Unfashionable though it is to say so, we see scope for brighter economic prospects during late H2 2012 and we see platinum and palladium as some of the strongest performing commodities for the year.
PALLADIUM Hi : $1050 Lo : $600 Average : $846
We think 2012 will be the year that palladium shines once again. Yes, global industrial output is likely to remain weak and yes the US Dollar Index has scope to firm from record lows in 2011 as the US is the first economy to start to emerge convincingly from the mire (with dollar strength conferring a dampener on commodity prices). Notwithstanding those caveats, we think that palladium will be supply constrained in 2012 as Russian stocks finally draw to a close which prompts industrial clients to build stocks. This we believe, will rekindle good investor and speculator interest. In short, despite poor demand fundamentals we believe palladium will rally in 2012 and be one of the top performing commodities of the year.
Sharps Pixley, London