Precious Metals: Outlook March 2018




Gold prices experienced some volatility in recent weeks, with upward pressures sending them higher by mid-February, followed by a price moderation at the end of the month as competing downward pressures strengthened. On 9 March, gold closed the trading day at USD 1,322 per troy ounce, which was 0.7% higher than on the same day in February. The price was 9.9% higher than on the same day last year and was up 1.4% on a year-to-date basis. The moderation at the end of February was led by a strengthening U.S. dollar, expected tightening in global interest rates and subdued retail demand in India. Nevertheless, fears of a potential trade war followed U.S. President Donald Trump’s decision to place import tariff s on steel and aluminum, supporting demand for gold, as it both increased the precious metal’s appeal as a hedge against uncertainty compared to U.S. bonds and equities, and put downward pressure on the U.S. dollar. In addition, gold demand in most Asian hubs was robust in recent weeks as activity increased following regional holidays. However, strong U.S. jobs data posted on 9 March limited gold’s gains. FocusEconomics analysts see gold prices moderating marginally in the coming quarters then bouncing back gradually in 2019. Competing pressures arising from the global geopolitical climate and developments in trade relations should continue to support demand, while monetary policy tightening in major economies is expected to weigh on the asset’s appeal. FocusEconomics analysts project gold prices to average USD 1,305 per troy ounce in Q4 2019. In 2019, gold prices are expected to rise, averaging USD 1,343 per troy ounce in Q4.

Silver prices were up slightly over the last month in the first week of March after losing ground at the outset of February. They recovered in recent days due to upbeat industrial demand amid a stronger global economic picture. On 9 March, silver closed the trading day at USD 16.7 per troy ounce, which was 2.6% higher than on the same day in February. However, the price was down 2.0% on a year-to-date basis and was 2.5% lower than on the same day in 2017. While reports indicated a small supply surplus of silver in 2017 after four consecutive years of deficit, due to higher scrap supply, analysts predict that silver will post a supply deficit this year, propping up prices. Along with a decline in global mine supply, stronger demand for industrial usage of silver from solar panel makers and the auto sector as it moves towards increased electrification, has placed upward pressure on prices. Moreover, the recent upturn in prices came as President Trump decided to impose hefty tariff s on imported steel and aluminum, shaking up markets and intensifying fears of a full-blown trade war. This fueled more safe-haven demand for silver. However, the president’s anticipated meeting with North Korea’s leader, Kim Jong-un, could ease geopolitical tensions and dampen safe-haven demand. Prices are expected to rise this year as supply remains constrained and demand from industrial applications continues to grow. Expectations of higher jewelry demand and higher volatility in fi nancial markets are also seen driving up prices. FocusEconomics Consensus Forecast panelists expect prices to rise moderately this year, averaging USD 17.4 per troy ounce in Q4 2018. The panel sees silver prices rising further in 2019, to an average of USD 18.3 per troy ounce in Q4.

Palladium prices passed the USD 10,000 per troy ounce mark in mid-February but have since come down; weak automotive demand and increased political uncertainty put downward pressure on the commodity. On 9 March, palladium closed the day at USD 984 per troy ounce, which was up 1.5% from the same day in February and was 6.8% lower on a year-todate basis. Nevertheless, March’s price was up 30.5% from the corresponding day in 2017. U.S. President Donald Trump’s plan to enact tariff s on steel and aluminum led to a broader sell-off of commodities that also swept precious metals such as palladium. Although prices in the short term are likely to be aff ected, strong fundamentals are expected to remain in place this year and next. Developments in the automotive industry are closely tied to the outlook for palladium, and recently put downward pressure on prices. New vehicle sales in the U.S. declined in February year-on-year, and this year growth in new car sales is expected to moderate overall. This should put downward pressure on palladium prices, as palladium is widely used for auto catalysts in gasoline cars. However, as diesel cars are losing popularity, especially in Europe, gasoline car demand stands to benefit. As a result, the outlook for palladium prices remains bright overall. The recent Republican tax cuts in the U.S. should furthermore provide a boost to private consumption in the country, boding well for car sales. Palladium prices are expected to remain fairly stable this year. Analysts polled this month project the price of palladium to average USD 1,056 per troy ounce in Q4 2018 and remain broadly on the same level in 2019. They expect an average of USD 1,041 per troy ounce in Q4 2019.

Platinum prices continued to fall over the last month in the first week of March. On 9 March, platinum traded at USD 949 per troy ounce, which represented the lowest price since early this year. The print was down 2.1% from the same day of the previous month, but was 2.4% higher on a year-to-date basis. However, the price was up 0.5% from the same day in 2017. Platinum prices remain in a weak spot due to ample global supply, which translated into the first surplus in 2017 in years, and declining demand for the commodity. Supply is rising due to an upturn in refi ned production in South Africa—the leading producer of platinum—which countered lower output from Zimbabwe and North America. Reduced demand from the automotive sector, largely due to decreased usage in Western Europe, is driving down prices. Platinum is mainly used in catalytic converters of diesel-powered cars; however, a wave of bans on diesel cars across European cities to tackle pollution has led to less demand for the vehicles, having a knock-on effect on platinum demand. Platinum prices are expected to climb slightly in 2018 as supply in South African mines shrinks under the strain of chronic under investment. Impala Platinum, the second-largest platinum miner globally, indicated that it would shut four mines over the next two years. While demand is expected to stabilize this year, it could potentially pick up among makers of auto catalysts for petrol cars. Tighter regulations on emissions and favorable platinum prices could prompt them to switch away from palladium, which has long been in supply deficit. FocusEconomics panelists expect prices to average USD 1,000 USD per troy ounce in Q4 2018. Prices are expected to continue to rise and to average USD 1,072 per troy ounce in Q4 2019.