Gold, Silver, Platinum prices may rally by year-end


NEWS YORK (Scrap Register): Commerzbank looks for gold prices to rise to $1,300 an ounce by year-end, platinum and silver to also rally but palladium to give up some of its recent strength.

“The gold price has recently profited from ebbing Fed rate-hike expectations and heightened political risks,” the bank said in an outlook released Wednesday. “We see a correction near term, followed by rising prices in the further course of the year and a gold price of $1,300 per troy ounce by year-end.”

Meanwhile, the German bank said the recent price rise in palladium to a 16-year high is “exaggerated” despite expectations of a significant supply deficit, therefore looks for a downward correction.

“After all, the automotive industry – the biggest driver of palladium demand by far – is losing momentum noticeably,” Commerzbank said. “In contrast, sentiment regarding platinum is already too pessimistic, and so we expect a price recovery here.”

Analysts said price movements in gold have been dictated by Federal Reserve monetary policy and political factors. Fed rate-hike expectations have declined “noticeably” following disappointing economic data, they added.

“Fed fund futures suggest that after the rate hike broadly anticipated for mid-June, only one more rate hike is expected” in the coming months, analysts said. “The U.S. dollar fell to a seven-month low against the euro as a result. Another price-driving argument recently added to the equation was the stronger euro. The decline in political risks following the election of allegedly pro-Europe [Emmanuel] Macron as new French president, as well as a series of positive data surprises in the euro zone, unleashed a new debate about an early end to the ECB's bond purchases and an early rate hike.”

Commerzbank noted that physical demand in the two major consumer countries of India and China has been “robust” in recent months. However, investment demand for gold “cooled off considerably” over the past three months after a strong start to the year.

“We are confident that investment demand will increase again over the course of the year due to various reasons,” the bank said.

Geopolitical uncertainty will remain high, especially since U.S. President Trump is “unpredictable,” the bank said. “Moreover, further key elections are on the European agenda in autumn (Germany, Austria, possibly Italy). With equity markets still flying high, reaching ever-new records, caution is also warranted.”

Analysts suggested silver should track price movements in gold.

“With the gold price correction we expect to occur in summer, silver should fall temporarily back towards $16.50 per troy ounce,” Commerzbank said. “The expected rise of the gold price should push the silver price to $18 per troy ounce again by year-end.”

Meanwhile, Commerzbank sees $1,000 platinum and $850 palladium in the fourth quarter. These two sister metals – both used for auto catalysts – have bucked their normal close correlation lately, with palladium hitting a 16-year high above $900 an ounce while platinum has languished.

The differing price movements can be explained by the fact that many analysts look for a supply surplus in the platinum market this year, while palladium is expected to be in a supply deficit, Commerzbank said.

However, Commerzbank said, demand prospects for palladium are becoming cloudier due to an apparent slowing in the auto industries of the U.S. and China. These markets are especially important for palladium since both favor gasoline-powered engines, which rely on palladium, whereas the diesel-powered ones popular in Europe tend to rely on platinum.

“The high level of optimism regarding palladium should turn out to be exaggerated,” Commerzbank said. “Speculative financial investors are expected to reduce their almost record-high net-long positions rather sooner than later. The palladium price is therefore expected to see a correction in the short term after the exaggerated increase in the last few weeks. Afterwards, the palladium price should rise to $850 per troy ounce by year-end due to the expected large supply deficit and the positive price trend in precious metals in general.

“The correction in palladium should also cause an unwinding of short platinum positions, which were set up more or less simultaneously. This should trigger a price recovery in platinum, which is likely to continue in the course of the year. Because of the much lower starting level and the less favorable fundamental backdrop, we revise our year-end forecast for platinum downwards to $1,000 per troy ounce.”

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