Precious Metals Price Outlook Economic Forecast

Precious Metals Price Outlook

Rising U.S. rates and dollar are clouding the outlook

Expectations for higher U.S. interest rates and a strong dollar are posing headwinds for precious metals, in particular for gold and silver, despite significant political and geopolitical uncertainty. Precious metal prices are forecast to decline 0.5% annually in Q4 2017, on the back of lower gold and silver prices. Conversely, prices for palladium and platinum are expected to end the year on a good note, given stronger industrial demand for the metals.

Precious metals remain under pressure and, for this complex too, it is the prospect of a mid-March U.S. interest rate hike that has no doubt prompted investors to short gold and silver to reap the profits. In previous reports, we recalled that selling gold and silver was noted ahead of the two previous rate rises in December 2015 and December 2016, and after each rate increase, gold prices started to rally. This time, high uncertainty related to Brexit, European elections and the Trump administration will attract some safe haven demand and support prices somewhat.

Beyond gold’s weakness in investment demand, India’s demonetization efforts are having an impact on physical gold demand. According to experts, the elimination of high-denomination bills (INR 500 and INR 1,000) prompted individuals to use gold to transition shadow money back into the legitimate economy, thus reducing demand for the yellow metal. Demonetization also shocked economic activity in India, weakening demand for gold in any forms. India is the world’s second-largest purchaser of gold jewelry, and more than half of household savings are believed to be held in gold rather than more conventional bank deposits.

Precious Metals Historical Price Data

2012  2013  2014  2015  2016  
Gold1668.69  1410.71  1265.83  1159.8  1248.54  
Silver31.14  23.82  19.07  15.71  17.15  
Palladium643.47  725  803.44  690.55  614.03  
Platinum1549.48  1485.41  1383.61  1051.85  987.37  

Note:
Gold prices in USD per troy ounce (toz).
Silver prices in USD per troy ounce (toz).
Palladium prices in USD per troy ounce (toz).
Platinum prices in USD per troy ounce (toz).
All prices are average of period (aop).

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