Gold will continue to face pressure

The platinum group of metals holds promise this year for investors compared to gold or silver, according to the London Bullion Merchants Association’s (LBMA) annual forecast.

Over 25 analysts, taking part in a poll for the forecast, have said gold and silver will continue to face pressure, while platinum and palladium will average higher than last year.

Gold, which dropped 25 per cent last year, is seen heading lower mainly on the US Federal Reserve tapering its stimulus programme. The Fed, which has already cut the programme to boost US economy to $75 billion a month, is likely to review the stimulus at the open market committee meeting during January 28-29.

The consequent strengthening of the dollar, weak global inflation, excess supply and further liquidation of gold holdings in exchange-trade funds will drag the precious metal. In addition, a resurgent equities market could also sway investors away from the precious metals market.

There is a silver lining, though. If Chinese buying tends to be as high as last year, it could provide some support. Further, with a change of Government expected in India, curbs on gold imports are likely to be relaxed, boosting sentiments. An increase in prices cannot be ruled out, the analysts said.

Rene Hochreiter of South African firm Allan Hochreiter Ltd, who has won the LBMA’s prize for 2013 forecast, says gold will not experience a sharp fall as last year.

Though gold supply is slowing, it is unlikely to influence price. Hochreiter sees gold supported at $1,200 an ounce.

Robin Bhar of SocietieGenerale CIB says with gold producers increasing their hedging, the yellow metal would be under further pressure. Bhar sees gold averaging at $1,135 with prices dropping to as low as $950 sometime this year. Bhargava N. Vaidya of B. N. Vaidya and Associates, Mumbai, says physical consumption in Asia will prevent gold from falling further.

However, he sees attempts to bring out hoarded gold affecting prices. Vaidya sees gold averaging at $1,235 this year, with the downside being $1,150.

Spot gold is currently ruling at around $1,235 an ounce.

No silver lining Silver, the worst-performing commodity last year, will be volatile this year with prices coming under strain due to surplus supply. Any lag in global GDP growth will also reflect in the white metal’s prices.

The encouraging factor could be growth in global economy, leading to demand revival.

Hochreiter, who has also topped with his projection on silver, says the white metal will follow gold, but its moves will be exaggerated. Though a drop in prices could encourage consumption by the electronics and photography sectors, the rise in demand will be insignificant. Supply could exceed demand by 30 per cent, he said, pegging the silver average price at $17 an ounce. Bhargava, on the other hand, sees silver’s relationship with gold supporting investments. He sees the precious metal averaging at $20.75.

Ross Norman of Sharp Pixley sees silver gaining eight per cent this year, with likely growth in photovoltaic market and other new emerging sectors. He has pegged silver’s average at $21.60.

James Steel of HSBC, New York, has come up with a neutral outlook on silver. Mine supply is seen adequate with primary production costs expected to be lower than current prices. Industrial demand, particularly for electronics, is seen robust and the metal will average at $20.80.

Silver is currently ruling at $19.74/ounce.

Bright stars? Prospects of disruption in supplies and strikes and industrial unrest are seen key to fortunes of the platinum group of metals this year. Platinum, in particular, is set to gain by at least six per cent, according to analysts.

Growth in the photovoltaic industry and the automobile sector is seen as other supporting factor. Glyn Stevens, International Commodities, London, has forecast platinum to average $1,290 an ounce this year. Stevens, who has bagged LBMA’s prizes for 2013 platinum forecast, says the path of least resistance will be lower for white metals, especially if gold crumbles.

Even palladium, in which an exchange-traded fund is set to be floated, may falter. He has pegged palladium’s average price at $679 an ounce.

Tom Kendall of Credit Suisse, London, projects an average price of $1,430 for platinum and $760 for palladium.

Kendall, the topper for his 2013 projection of palladium, says demand outlook is still robust, despite efforts by China to curb sales of new cars. Global recovery will propel the metal higher.

As regards platinum, Kendall says the outlook could turn bright from the second half of the year, though the road to price recovery could be long. Platinum is currently ruling at $1,452 and palladium at $744.

A feature of LBMAforecasts has been that usually, the average price tends to be higher than the forecast.

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