Volatility ahead, but precious metals rally to remain intact
Price predictions are a sucker's game, but it's fun to make them from time to time, even though it's absolute guesswork.
The nature of the guessing game is changing though.
Consider this two-tier commodities forecast developed by some French bankers, it seems to suggest that global commodities pricing, at least with respect to metals, has become so complex that it's only prudent to issue different predictions based on various economic models.
Actually, I think it would be more accurate to peg predictions to a sliding optimism/pessimism scale.
I haven't seen a lot of companies boldly projecting prices beyond next year.
There are a couple of reason for that: For one, the whipsaw conditions on the demand side has been so severe over the past two years, beggaring producers in '08 and then restoring their fortunes over the past 18 months, that analysts have become extremely gunshy.
For another, speculating in base metals futures has become a rich man's sport. In simpler days pricing was based on fairly predictable supply and demand scenarios. The futures market was for producers and consumers who bought and sold forward to smooth out their balance sheets; now it's Casino Royale for a growing number of hedge funds bent on risky ventures and quick returns.
Société Générale seems to be on more solid ground with its precious metals projections. The bank is looking for an upward trend in gold and silver over the next few quarters, driven by increasing inflationary fears and concerns that developed countries might be tempted to monetise some of their hefty sovereign debt (.. and the latter of those is the wild card this year with some predicting a global sovereign debt meltdown. Alors!).
Also worth noting in SoGen's report:
-Jewellery demand has paused in March, but is expected to remain resilient overall.
-Investors are expected to continue to hedge against economic and financial risk.
-The investor is expected to absorb IMF sales – especially if the euro enjoys a short covering rally.
So we're looking at an average in the final quarter '10 of $1,325 per ounce for gold and $21.75 for silver. Prices will taper off after 2011 while silver prices will remain higher and peak in 2012. However, the trend will be bumpy, and investors are advised to be more risk tolerant and think long term.
The World Gold Council also has a few interesting things to say about gold pricing going forward, check it out here.