- We lower our 2013 average gold price forecast to USD1,760/oz from USD1,850/oz and leave 2014 forecasts unchanged; we introduce a 2015 forecast of USD1,675/oz
- Our silver, platinum and palladium forecasts are unchanged. We introduce a 2015 forecast for silver (USD28/oz), platinum (USD1,815/oz) and palladium (USD825/oz)
- Gold should benefit from the global accommodative monetary policies, likely USD weakness, ongoing central bank purchases and a likely recovery in EM demand
We are lowering our average gold price forecasts for 2013 to USD1,760/oz from USD1,850/oz after factoring in the 2012 year-end price of USD1,675/oz, and leaving our 2014 forecast of USD1,775/oz unchanged. We are introducing a 2015 forecast of USD1,675/oz and leaving our long-term forecast of USD1,500/oz unchanged. We estimate a wide USD1,575/oz to USD1,950/oz trading range for 2013 and expect the market to remain volatile.
Gold prices dropped sharply in Q2 and Q3 2012 as markets scaled back expectations of a third round of quantitative easing (QE3) by the Federal Reserve. Gold was also undercut by a weaker EUR in Q2. Additionally, jewelry demand in much of the world weakened on sluggish economic conditions.
After an initial strong boost from the announcement of QE3 and a rally in the EUR, gold prices went on to the defensive for the latter part of Q4. This was due to macro fund liquidation and uncertainty over the impact of a US “fiscal cliff”, which a led traditional gold investors to shift out of bullion and move onto the “sidelines.”
We believe that gold prices will recover this year and retain a pronounced bullish posture (see 17 October 2012 Gold Outlook: The currency you cannot print). According to HSBC economic research, Fed funds are likely to remain at current low levels until sometime in 2015. Other major central banks have also adopted conventional or unconventional easing of monetary policy. The “weight of money” argument states that when liquidity rises, the value of hard assets tends to rise. This is widely accepted as gold-bullish. Even investors who believe QE policies will be ineffective may be attracted to gold as an inflation hedge of as a quality asset. A modestly stronger EUR in 2013 based on HSBC currency research forecasts is an important factor in our bullish gold outlook, based on the traditional USDgold inverse relationship.
The gold market is likely to trend higher based in part on more positive underlying supply/demand fundamentals. Emerging Market demand was weak in 2012 but Indian consumption is likely to recover based in historical consumption patterns. Furthermore, we anticipate strong Chinese import demand based in part on HSBC macroeconomic forecasts for GDP growth. Scrap supplies while ample, are unlikely to rise at current price levels. Mine supply is likely to grow moderately in 2013 but we do not believe the marginal increase in output will be sufficient to deter a rally.
The official sector is likely to be strong source of demand in 2013. According to the International Monetary Fund, central banks bought 310t of gold in the first 10 months of 2012. We expect central banks, notably in the emerging world to keep accumulating gold as one strategy to diversify their foreign exchange holding. Gold exchange traded funds grew at a modest pace in 2012 despite price declines and we expect investor demand to increase this year. Another source of demand is coins and small bars which although volatile, are likely to be positive this year based on recent price weakness and investor uncertainty.
We are leaving our 2013, 2014 and long-term price forecasts unchanged at USD32/oz, USD28/oz and USD25/oz respectively. We are introducing a 2015 average price forecast of USD28/oz. We anticipate a USD27/oz to USD37/oz trading range for 2012.
After weakening in 2012, we are moderately bullish on silver prices this year due to a recovery in manufacturing demand, based on HSBC forecasts of industrial production. We expect retail investment demand for coins and small bars to recover from declines in 2012 but to remain volatile. We anticipate silver exchange traded fund demand to grow further this year as uncertain economic conditions make it likely investors will seek out hard assets, including silver. Robust mine supply increases are likely based on production schedules and should limit rallies, we believe.
For platinum, we are leaving our 2013, 2014 and long-term average price forecasts unchanged at USD1,710/oz, USD1,800/oz and USD1,825/oz unchanged. We are introducing a 2015 average price forecast of USD1,815/oz. For palladium we are leaving our 2013, 2014 and long term average price forecasts unchanged at USD750/oz, USD800/oz and USD850/oz. We are introducing a 2015 forecast of USD825/oz. For platinum we anticipate a wide USD1,525/oz to USD1,875/oz trading range for 2013.
For palladium we anticipate a USD650-800/oz trading range for 2013. After weakening in 2012, the PGMs are likely to rally in 2013 due principally to supply tightness (see 18 December 2012 Squeezed supply: It’s time to buy). Platinum mine supply growth in South Africa is limited due to a range of factors notably industrial, safety-related and technical work stoppages. Limited Russian production and dwindling stockpiles should support palladium. Increases in auto sales according to HSBC automotive research may be offset by increases in PGM scrap supply. Moderate industrial demand according to HSBC macroeconomic research will also help support PGM prices.