Commodities | Feb 08 2007
By Chris Shaw
A lot has been written in recent weeks about the bullish outlook for the gold price, but at the same time the other members of the precious metals family, namely silver and the platinum group metals, have received little or no coverage.
In its latest update on the sector Natexis Commodity Markets addresses this, and not surprisingly, suggests the poorer cousins of gold in terms of recent market attention also have positive outlooks.
With respect to silver the group suggests not only are the fundamentals positive but there is upside for the metal from any further weakness in the US dollar. It also sees a scenario when the weight of money argument comes into play, as just as central banks have been suggesting they will diversify into gold so they could put some money into silver as well. The group’s view is it would only take a small shift away from traditional markets such as bonds to have a disproportionate impact on the silver market.
The supply – demand equation is also in the metal’s favour, as on the group’s estimates demand grew by around 3% last year, in part because buying from the jewellery sector actually held up better than it did for gold. This can be explained as least partly by the fact much of silver consumption is in the developed world, even though fabrication of the metal is generally done in Asia.
The simple summary then is of a market showing limited supply growth, reasonable demand growth and increased investor interest, which Natexis suggests could be enough to support a price of US$15 per ounce going forward. Its forecasts are somewhat more conservative, the group estimating the price will average US$13.75 per ounce this year and US$14.25 per ounce in 2008. This compares to an average price in 2006 of US$11.55.
Conditions are similarly favourable for higher prices in the platinum and palladium markets as well, the group expecting prices will continue to trend higher for at least the next couple of years.
Platinum is being boosted by the market being in deficit, which is resulting in a significant and sustained drawdown of above ground stocks and so leaving it vulnerable to supply side shocks.
On the negative side consumption in the jewellery sector fell as prices rose last year, as the Chinese in particular shifted to palladium jewellery rather than pay up for platinum. This contributed to an 8% fall in platinum use, compared to a 5% increase in palladium use.
Industry demand should remain firm though, the group noting the development of the automobile markets in both India and China and an ongoing focus on emission standards in developed countries suggesting either firm demand or an increase of up to 200,000 ounces this year.
Factoring this in, Natexis is forecasting average platinum prices this year of US$1,265 per ounce, rising to US$1,340 per ounce in 2008, while for palladium it is forecasting average prices of US$355 per ounce and US$375 per ounce respectively. These estimates compare to 2006 average prices of US$1,143 per ounce and US$320 per ounce respectively.