FxWirePro: Platinum and Palladium join the party of precious metal’s outperformance amid supply-demand rebalancing

Platinum & Palladium:

Improved investor sentiment towards PGMs (Platinum group metals) and anticipated increases in physical investment purchases in 2016 has warranted an upward revision to our price forecast from the last quarterly review.

The price surge for the PGM metals, which has become apparent since we entered the third quarter of the year has somewhat altered the dynamics within the precious metals complex, with PGM price performance once again being driven by the metals’ underlying fundamentals, after decoupling over the past two years.

Current wage negotiations in South Africa at PGM producers are a supportive factor. Lower mine supply from South Africa this year and growing autocatalyst demand are also expected to result in tighter market fundamentals.

Platinum prices are expected to average $1,050 this year, up from $1,000. We have revised our 2017 forecast higher as well, from $1,100 to $1,200. Palladium price forecasts were also revised higher, to an average of $625 in 2016 from our previous forecast of $575 - and $800 in 2017 from $700.

Silver: The silver price is expected to average $17.50/oz this year, underpinned by a number of positive factors. There is still a lot of uncertainty associated with Brexit, geopolitical unrest, and the global economic slowdown, while the US presidential election later in the year is likely to add further volatility to global financial markets.

Gold: The gold price has remained supported by investor buying interest. The revival of ETF interest was spurred by the move from ZIRP to NIRP, (zero to negative interest rate policies), ongoing uncertainty surrounding Brexit, volatility during the US presidential election race, and continued concerns about a slowing Asian economy and its impact on the global economy.

We kept advocating staying longs in  gold futures from last couple weeks, as we previously explained when we recommended going long Dec’16 CME gold, we believe the constructive environment for safe haven gold demand brought about by unconventional monetary policy and macroeconomic risks will only intensify over the next year and a half.

Moreover, we especially see a constructive environment for gold in the first and fourth quarters of 2017 (with quarterly prices averaging $1,450/oz) as western-based safe haven demand is compounded by increased physical buying in India and China during the wedding and festival seasons.

We forecast a moderately higher gold price during the remainder of the year with a Q4’16 price forecast of $1,350 as our economists expect a slow pace of Fed tightening with the next rate hike likely at the December meeting.