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SHARPS PIXLEY SEES GOLD AVERAGE AT $1321/oz in 2015

GOLD

AVERAGE : $1321
HIGH : $1450
LOW :  $1170

We are going out on a limb this year.

If markets move on what you don't know today, but will know tomorrow then it follows that many
factors such as a US interest rate rises should already be factored into the current price... it also
begs the question what the new drivers for 2015 will be. We see ongoing declines in economic growth
prompting central banks to fight deflation by resorting to inflationary pressures in H2.

If our outlook for gold in dollar terms is bullish, in emerging currencies it may be even more so as
investors seek to insure or hedge against currency debasement. As such, we foresee good demand for
the physical.

Most annoyingly for bulls in 2014, gold exhibited 'rally fade' despite a global economy that was as
fragile as ever. Our forecast is predicated on gold becoming price inelastic (as it was in the early 2000's)
and able to sustain the momentum. I say annoyingly because arguably never before have savers potentially
so needed an asset with the wealth preservation qualities that gold provides ... yet the price performance
these last few years has disappointed.

In short, we see gold demonstrating that it has turned a corner and investor flows return with a
vengeance, aided by short covering and fresh longs in the futures markets. Perhaps most disappointingly
though we are unlikely to see runaway prices beyond the $1450 level without either significant new product
innovations or without the sort of black swan events in the economy that few of us would wish for.


SILVER
AVERAGE : $18.56
HIGH : $21.75
LOW :  $14.50

With a firm outlook for gold, it follows that our expectations for silver would be similar ... and a little more
so... such is silver's propensity to follow gold in a exaggerated fashion. Investors will take comfort from
silver ETF holdings which have remained firm (unlike gold) coupled with retail sales of the physical coins
and bars which have remained robust.

Even mine production looks set for a modest decline back to levels last seen in 1999. With 75%
of silver being produced as a by-product of base metals mining, the weaker global economy may well
prompt some cut-backs in mining those host metals. Equally, demand from industrial applications will be
correspondingly weaker, but investors (... or more likely speculators) are normally on hand to fill the void.

Like gold, silver does seem to struggle to sustain momentum to the upside as it experiences 'rally fade'
for this reason we do not see the likelihood of runaway prices just yet.


PLATINUM
AVERAGE : $1268
HIGH : $1480
LOW :  $1120

As an industrial metal, the saying "as goes the economy, so goes platinum" may well hold true in 2015...
and that may not be an entirely positive story for either. The good news for platinum is that global car
sales continually surprises to the upside, although we remain concerned about easy credit for vehicle
purchases in the US and the rising delinquency rates on those loans.

Platinum bulls will no doubt be disappointed that even a 5 month mine strike in South Africa did
precious little to reward investors in 2014 with the white metal scoring a fall of 11.9% (its failure
starkly contrasting with palladium which saw gains of 10.9%).

We foresee some platinum price strength in early 2015 as car sales rates remain firm, but with a global
industrial production on the wane it is difficult to be overly optimistic beyond that.

In short, we see the platinum over gold premium being maintained, but well below the run rate.


PALLADIUM
AVERAGE : $876
HIGH : $975
LOW :  $660

Palladium was the best performing metal (and one of the leading commodities) of 2014 with a 10.9% gain
- a performance it may struggle to emulate in 2015. With oil prices very much under the cosh, Russia may
be under significant pressure to release mine production plus any residual stocks, to the market.

Whilst South Africa seems to have put its miner strikes behind it, power outages in 2015 could hamper efforts
to rebuild mine production to former levels.

Supporting firmer prices we see auto sales remaining robust although we would question how long it could
remain so with delinquency rates on auto loans rising sharply in the US.

As such, we foresee another positive year for palladium based upon attractive supply/demand fundamentals
despite the backdrop of a relatively weak global economy. We also foresee an ongoing supply deficit in the order
of 1.4mio which will keep the metal well bid. Of the four metals, palladium remains once again our firm favorite.

16 Jan 2015 | Categories: Gold

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