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Gold Market Analysis
June 17, 2022

Precious Metals Advisory Precious Metals Price Outlooks


Gold Price Outlook
Gold prices spent much of the second half of May consolidating, a price pattern that has continued into the first several trading days of June. There are a lot of factors that have been both pushing gold prices lower as well as pulling them higher. The heightened uncertainty in financial markets about inflation, tightening monetary policy, the consequence of this tighter monetary policy on inflation and economic growth and the future pace at which policy will be tightened have left the gold as well as other financial markets in a state of flux.

Prices should be expected to remain volatile in coming months, with a downward bias. Seasonal weakness and the potential for the Fed to be more hawkish than some market participants had been expecting should be expected to weigh on prices. On the other hand, elevated global inflation and the possibility of a slightly softer U.S. dollar in coming months as the ECB begins
tightening policy should provide some support to gold Prices.

Gold prices are expected to move between $1,800 and $1,880 for the most part over the next several months. But given the high level of uncertainty in the markets, it should not be too surprising to see gold prices break out on either side of this range in the short to medium term.

On the upside, gold prices could retest $1,900 or even $1,915. Meanwhile on the downside a decline to $1,780 or even $1,750 is possible.

Silver Price Outlook
Silver prices declined sharply during the first half of May, making back some of those losses during the second half of the month. Even with the recovery silver stayed lower than levels seen during April. Silver was hit particularly hard because of expectations of tighter monetary policy, hurting both fabrication demand as well as investment demand for the metal. While the recent decline in silver prices has been extremely sharp, the market still has managed to keep itself above the $19.50 mark, a price level below which silver spent much of the period between 2014 until the covid outbreak in 2020.

The same uncertainty that is expected to help gold is also likely to be supportive of silver prices. That said, seasonal weakness, tightening monetary policy, and the possibility of a recession are all factors that are expected to weigh on silver prices in the near future. Silver prices could retest $20.50 over the next few months. The use of silver as an inflation hedge, its relatively undervalued status compared to gold, and ongoing demand from the solar panel industry despite a potential slowdown in global economic growth are factors that are expected to provide some downside support to prices.

Platinum Price Outlook
Platinum prices, like the rest of the precious metals complex, moved in a sideways fashion during much of May. Prices broke out of this range in early June. Wage negotiations started at Sibanye’s platinum mines at the start ofJune. Given the labor strike, during wage negotiations, at the mining company’s South African gold mines, there are elevated concerns that the same may occur at Sibanye’s South African platinum mines. Platinum prices rose to an intraday high of $1,038.30 on 6 June. Prices have softened some from those highs but still remain above levels seen in May at the time of writing this report. The potential for PGM supply disruptions out of South Africa are supportive of platinum and rhodium prices given the large proportion of these metals’ supply that comes from this one country.

While supply side fundamentals are supportive of platinum prices at this time, the demand side has been taking a beating, with commercial vehicle demand down strongly in most major commercial vehicle markets of the world. Additionally, diesel passenger vehicles sales continue to shrink in Europe adding further downward pressure on platinum fabrication demand and prices in the near future.

Platinum prices are expected to move in a sideways fashion between $990 and $1,050. Weakness in platinum fabrication demand is unlikely to allow platinum prices to rise. Meanwhile, prices are unlikely to fall sharply in the absence of a signed wage agreement between Sibanye and its labor unions. If a strike were to occur at Sibanye’s platinum mines in South Africa, platinum prices could spike higher. Prices could potentially rise toward $1,200 in such an event.

Palladium Price Outlook
After declining during the first half of May, palladium prices moved in a tight range during the second half of the month. Prices slipped from $2,307 at the end of April to an intraday low of $1,837 on 12 May. Prices essentially moved in a $100 range between $1,940 and $2,040 over the remainder of the month and into early June.

Palladium prices have been supported by supply side issues and weighed down by weakness in fabrication demand. On the supply side, a suspension of Russian PGM refineries from the LPPM good delivery list and ongoing concerns about supply disruptions from South Africa as wage negotiations are being held at Impala Platinum and Sibanye-Stillwater’s South African mines have been supportive of prices.

With regard to the suspension of Russian PGM refiners from LPPM’s good delivery list, that metal is likely to find its way into world markets through refiners and fabricators in other countries. Much of the Russian PGMs exported does not go through the London market delivery system, but rather is sold directly by Russian refiners to overseas fabricators, not passing through the London market. Thus the suspension is expected to have little effect on the palladium market.

The wage negotiations in South Africa are expected to remain supportive of palladium prices until there is a signed agreement between labor unions and the mining companies. Anglo-American Platinum, meanwhile, which also had wage negotiations with its labor unions was able to secure a signed five-year agreement.

While supply concerns have been supportive of prices, fabrication demand especially from the auto sector has weighed heavily on demand. There have been various factors that have hurt auto sales, the biggest being the lack of vehicle inventory due to the ongoing chip shortage and now a disruption to other part supplies due to the war between Russia and Ukraine. The lack of inventory, which has driven up prices, is being met with tightening monetary policy further hurting demand.

Covid related lockdowns in China further hurt demand for passenger vehicle sales. Chinese passenger vehicle sales were down 43% during April on a year-on-year basis. This was the largest fall in demand since March 2020. The Chinese government has planned incentives to boost demand in the auto market, which should help PGM fabrication demand in coming months. However, this still does not resolve the problem associated with auto part shortages and tightening monetary policy in many markets around the world. It is possible that any such increase in Chinese auto demand would put further stress on auto inventory and prices around the world in net hurting PGM demand.

Palladium prices look vulnerable to the downside, in the absence of a supply side disruption from South Africa. Additionally, prices move into a period of seasonal weakness over the next few months, which could add further downside pressure to palladium. Palladium prices have initial support at $1,840 and then $1,740.”

*This information is solely an excerpt of a third-party publication and is incomplete. Please subscribe to the referenced publication for the full article. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.

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