© Jochen Hitzfeld
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Jochen Hitzfeld
Economics and Commodity Researcher at UniCredit Markets and Investment Banking
Generally we are bullish on the precious metals sector. Our forecast for gold is $1.800 an ounce for the yearly average, potentially it could even hit nearly $2.000 an ounce in the Q4 of 2012. For silver we forecast a price of $35 an ounce as a yearly average. Palladium is anticipated to reach $760, while platinum is expected at a $1.700 level.
We regard relative interest rates as the main reason of a very positive future outlook for the precious metals. Besides that, strongly expanding balance sheets of central banks are weighing on the credibility of the paper currency system. Currently the central banks have turned from net sellers of about 450 tons to net buyers of 500 tons. It is a huge number, given that the whole mining production is only 2500 tons. Therefore, a swing of 1000 tons when the supply side is only 2500 is enormous.
Moreover, investors believe that it is a brilliant idea to invest into gold and other precious metals. Therefore, if you imagine that there is only 1% of allocation of stock and bond markets into gold and they will have to buy 20000 tons of Gold, it turns out complicated because the overall global reserve is only 50000 tons.
In addition, such precious metals as silver, platinum and palladium have a strong industrial component of the demand side. Currently the global purchasing power index is augmenting again and for two months in a row we witness a monetary easing policy in the emerging markets, which means that the chances are quite high that there will be additional demand. For instance, the demand for palladium is coming mostly from China and it is growing as they use it for cars fleet, catalytic converters and gasoline cars which is a preferred engine in Asia that has densely populated the Asian countries. The biggest suppliers of palladium have been Russian inventories for 15 years. Russia has been delivering about 1/3 of the whole palladium supply and last year was the last year when it supplied palladium; however, its inventories are now empty which is causing major troubles for the producers. If we take silver, it is supplied as a by-product from copper, lead and other mining activities, while the biggest supplier of platinum is South Africa.