Gold fifth best performing commodity of 2014

Palladium did best in dollar terms of all commodities in 2014, while gold’s overall performance, while disappointing for gold bulls, was far better than most others.  Article now up on Mineweb.com – to read it and other global mining and metals news and comment there click on this link

Lawrie Williams

Before you gold bulls out there cry ‘rubbish’ it should be borne in mind that last year was a disastrous year in dollar terms for virtually all commodities across the board.  Only four internationally traded commodities showed gains over the year, while gold was the least bad negative performer among the rest with a drop of only 1.7% – but has now shot up nearly 10% since the start of the year.  Indeed, as we pointed out in a recent article, gold performed positively over 2014 in virtually every currency other than the U.S. dollar.  So despite being a disappointing year for dollar area gold bulls, it will have been a positive year in all non-dollar tied nations.

See:  Gold great value protector in 2014 – silver not

We are indebted to Frank Holmes and U.S. Global Investors for the graphic below which sets out the performance comparisons for the globally traded commodities since 2005.  It can be see that palladium, nickel, zinc and aluminium were the only commodities which showed gains in price – with palladium the comfortable winner for the year.  But gold, despite showing a small loss, performed hugely better than most other commodities like copper which was down a heavy 14% during the year.  But even this was a small fall compared with crude oil – down 46% – and natural gas – down 31%.  Even agricultural commodities like corn and wheat were down in price by much more than gold.  A larger high res pdf version of this table is available by clicking on this link.

pt chartWhile slower industrial growth than hoped in the West and the downturn in the Chinese economy primarily responsible for the weaker commodity prices, the prime culprit will have been the U.S. dollar which rose by 13% over the year against the basket of currencies against which the dollar index is measured.  So in most currencies other the reversal in fortunes for commodities would not have been nearly so bad.  While in dollar terms 2014 may well have seen the biggest commodity reversal in recent years (since 1986 in fact), in other currencies it will not have been nearly so bad.  As we pointed out in our earlier article on the subject  (see link at the start of this article), perhaps we are too fixated on the dollar as the reference baseline when making these kinds of judgements.  In the Russian ruble for example commodity prices will have been booming in 2014!

Palladium’s performance to buck the overall trend with a significant rise of more than 11% was partly due to a relatively buoyant global market for automobile sales, coupled with an assumed  supply deficit of over 1 million ounces in 2014 according to the platinum experts at Johnson Matthey.  However there didn’t appear to be any significant non-availability of metal presumably because stockpiles at the main users have been well maintained when prices were lower.  Platinum also saw a perhaps 1 million ounce deficit, largely due to the South African platinum mine strikes, but here the overall price still fell – perhaps because of additional supply coming out of the platinum ETFs.

 

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LBMA top gold forecaster: gold price to average $1321 in 2015, silver $18.56

The annual LBMA precious metals price competition’s top gold forecaster over the years, Sharps Pixley’s Ross Norman, is bucking the mainstream analyst consensus with a $1321 average gold price forecast for 2015.  Silver $18.56, Platinum $1268, Palladium $876.  Slightly modified version of article posted to Mineweb.com – the website for the best global mining and metals news and comment.

Lawrence Williams

In his submissions to this year’s LBMA precious metals forecasting competition, Ross Norman who heads up London bullion broker Sharps Pixley, and who has been probably the most successful forecaster in the LBMA panel in the past, says he is going out on a limb with his forecast for the gold price average this year at $1321. (It would certainly have been out on a limb last month although perhaps seems less so now given the gold price performance so far this year.) He is also looking for a gold price high of $1450 and a low of $1170 during the year. With most of the forecasting panel being bank and institutional analysts, whose forecasts tend to be much more conservative – some would say decidedly bearish – Norman must have a good chance of adding to his wins if gold’s advances continue.  The LBMA is expected to publish its full listing of its annual competition forecasts later this week, along with the analyst participants’ reasons for their predictions.

Norman has been the outright winner of price forecasting sections of the LBMA competition five times in the past  – usually by ‘going out on a limb’ which was a pretty good policy when the gold price was in its bull market phase  Norman has also had numerous Top 10 positions.  Perhaps he tends to favour the more bullish trends so will he be back on track again this year?  If the current momentum in the gold price gathers more strength still his forecasts could even prove conservative but it would perhaps be foolhardy to automatically assume that gold’s good start to the year will not beget a serious correction at some stage later on.

Norman’s stated reasons for his fairly positive predictions on gold this year are as follows: “If markets move on what you don’t know today, but will know tomorrow then it follows that many factors such as a US interest rate rises should already be factored into the current price… it also begs the question what the new drivers for 2015 will be. We see ongoing declines in economic growth prompting central banks to fight deflation by resorting to inflationary pressures in H2.  If our outlook for gold in dollar terms is bullish, in emerging currencies it may be even more so as investors seek to insure or hedge against currency debasement. As such, we foresee good demand for the physical.”

He sees gold already demonstrating that it has turned a corner and sees investor flows returning strongly but reckons there are unlikely to be runaway prices beyond the $1450 level without either significant new product innovations or without the sort of black swan events in the economy that few would wish for, although the potential for these looks ever greater following the SNB’s decision of last week to drop the Swiss Franc peg against the Euro.

He is also fairly bullish on silver, looking for an average price of $18.56 over the year, encompassing a high of $21.75.  In percentage terms these are big rises from the prices prevailing at the beginning of the year.  This is commensurate with the general pattern of silver moving up faster than gold on the upside – and he also reckons that investors will take comfort from silver ETF holdings which have remained firm (unlike gold ETFs) coupled with reported retail sales of the physical – coins and bars -which have also remained robust.

He seems to be a little more sanguine in his views on platinum.  Despite many analysts seeing platinum in serious supply deficit this year, he is looking for a yearly average price at $1268 – somewhat below that of his gold forecast suggesting that at some stage during the year the platinum price will fall back below that of gold as it has now already done on Friday after struggling to stay above the gold price level for most of last week.  He does foresee a high price during the year of $1480 – thus higher than that he sees for gold.

Finally there is palladium – the precious metal probably most supported by analysts in recent months due to what are seen as continuing strong fundamentals.  Norman is looking for an average price over the year here of $876 with a 2015 high reaching $975 as against the price at time of writing of $755.  Palladium was last year’s best performer in the precious metals sector and Ross suggests it may have trouble matching last year’s 10.9% increase, but even so he feels the junior precious metal as having another positive year based on continuing attractive supply/demand fundamentals despite the backdrop of a relatively weak global economy. He also points to an assessment suggesting an ongoing supply deficit in the order of 1.4 million ounces which will keep the metal well bid. Of the four metals, palladium remains once again his favourite, although, on his predictions perhaps gold and silver will do even better!