Thomson Reuters GFMS's Philip Klapwijk presented his views on gold, silver, platinum and palladium at the Mines & Money conference in Hong Kong
Speaking at the start of the Key Commodities Summit preceding the first full day of Mines& Money Hong Kong, Philip Klapwik, Global Head of Metals Analytics for Thomson Reuters GFMS, gave a positive assessment on precious metals prices for 2012, despite the recent volatility in the sector.
Given that gold is so dominant by value in terms of investment inflows into precious metals (around 87% compared with 11% for silver, 2% for platinum and less than 1% for palladium), Klapwijk devoted the major part of his presentation to the yellow metal.
Overall, he was positive relating to its price prospects this year. However, he did comment that there was the possibility that the price might yet test $1,600 on the downside before peaking perhaps at around $2,000 and averaging $1,800 over the year.
GFMS analysis suggested that global gold supply is increasing again after a bit of a hiatus. While much of the current supply increase relates to higher scrap sales, we are also seeing what he described as a secular increase in gold mine production as the higher gold prices have stimulated exploration and new mine development more than countering the declines in output from the world's older gold mining operations.
While gold supply is increasing, the key areas of demand - notably in jewellery - are seeing a fall. Significantly higher gold prices have led to a downturn in jewellery demand, although perhaps not to the extent that might have been expected given the sharpness of the price increases over the past few years. He did expect, however, this decline in jewellery demand to continue this year, thus widening the already big gap between supply and demand.
While for other commodities one might expect this to lead to a sharp reduction in price, Klapwijk commented that gold is no ordinary commodity and that prices are sustainable despite the big supply surplus as long as investment demand, which GFMS sees as balancing the books, continues at current levels or even higher - and Klapwijk and GFMS do see this continuing with perhaps as much as $120 billion of investment purchases going into gold in 2012.
As the other major investment metal in the precious metals complex, GFMS and Klapwijk are also mildly positive on silver this year too. Silver has been one of the best performers in recent years, but has also proved to be more volatile than gold or the pgms which makes it a more risky investment.
Again, silver supply is seen as having been increasing, resulting in similar supply surplus parameters in percentage terms to those of gold.
Nevertheless, investment demand for silver has also remained strong, soaking up the supply surplus. For Silver Klapwijk predicts a possible high of $45.05 this year and an average of $34.05 - which presupposes that there could be a downside possibility of $26.85 in the short term which would likely coincide with any downturn in the gold price. $50 silver this year, however, as some have predicted, he described as "a bit of an ask!"
Platinum supply has also been growing, although that from major producer, South Africa, has only been increasing very modestly due to some well documented labor and safety issues among others. Demand growth though has also been lackluster given the main growth in car manufacture is in the emerging markets where petrol (gasoline) engines are dominant for which autocatalysts are largely palladium based. Even in the diesel sector substitution for platinum in autocatalysts is beginning to be seen limiting growth in this market too.
But despite these seemingly adverse factors affecting platinum, Klapwijk felt that price downside was relatively limited as the marginal production price in South Africa in particular is not too far below current price levels.
Despite platinum recently having reasserted a price premium over gold, after slipping below it, from Klapwijk's price projections for 2012 it looks like there is the prospect of it falling back below gold again, although this was not specifically stated. The projected price range for 2012 is seen as ranging from a prospective low of $1405 to a possible high of $1885 and an average over the year of $1620 - all below the similar price projections for gold!
Palladium has been the underperformer amongst the precious metals if one looks at the period of the overall precious metals bull market since 2001. However conversely it has actually been one of the best performers over the past two years. Fundamentals are seen as relatively strong longer term, but Klapwijk expects volatility in 2012. At times a basic supply shortage has been exacerbated by investment demand although this has fallen away somewhat of late. Price projections for 2012 were seen as a possible high of $800 an average of $735 and a possible low of $590.