Gold as a safe haven
There are several indications that the price of gold could rise in 2019. In light of unrest in the capital markets, investors are increasingly turning to less volatile alternatives. The central banks in developed markets have pursued an unconventional monetary policy for years. The US Federal Reserve appeared to have first retreated from the zero-interest rate policy to a normal interest rate environment and now seems to act with more caution again. A temporarily weaker US dollar could support gold. This overall situation holds the potential for unexpected tensions. Gold can be used as a tool to hedge against currency fluctuations. Furthermore, economic and political uncertainties are globally on the rise. The Brexit, the unsolved trade conflict between China and the United States, the government shutdown in the United States, or the recession in Italy – these and other factors are causing the global economy to experience lower growth. Central banks are increasingly becoming gold buyers again, thus supporting demand. For 2019, the price per fine ounce of gold is expected to range between US $1,225 and US $1,450.
Following in the wake of gold, silver sees stronger growth
In uncertain times, the price of silver is influenced by the same factors as the price of gold. Furthermore, there are other signs that the price of silver will experience a steeper rise than gold in 2019. The underlying demand from the industry is growing. This precious metal is indispensable for photovoltaics, and, despite more efficient products with lower silver content, a higher number of new installations in many regions will lead to higher demand for silver. Furthermore, silver is necessary in the growing areas of electronics for vehicles, smartphones, tablets, and so forth. On the investor side, silver supplies declined last year and for ETFs, they have fallen by 280 tons.
The current gold-silver ratio of 83 is also indicative for this. Silver is consequently undervalued compared to gold. Historically, ratios above 80 have never lasted long. Because the market environment now favors the demand for silver, the price per fine ounce of silver is expected to range between US$14.50 and US$20.00.
Platinum surplus remains; strikes could temporarily prop up the price
The lower demand for diesel engines continues to lead to an excess of platinum. The automotive industry is the largest consumer of platinum, with a 42 percent market share. Platinum is used in diesel catalytic converters.
The platinum demand from the jewelry industry, at a share of 25 percent, remains with the risk of declining.
A slight uptick in demand for platinum is due to its applications in oil refineries, especially in China and in the USA, and a higher demand for platinum as a catalyst material for chemical processes.
The offer of platinum from mines, primarily in South Africa, is supposed to grow by one percent. Potential strikes over wage negotiations in the mining industry could temporarily prop up the price. The offer from recycling is seeing moderate growth this year. All in all, a production surplus of 21 tons of platinum is expected for 2019, with overall production amounting to 207 tons in 2018. The close correlation with gold could temporarily support the price of platinum. The price per fine ounce of platinum is expected to range between US$700 and US$950.
Palladium remains in short supply; price expected to rise with high volatility
The shortage of palladium will continue in 2019, as visible ETF stocks have shrunk from 39.4 tons to around 20 tons. The automotive industry is the heaviest consumer of palladium, at 81 percent. Palladium is used in catalytic converters in gasoline engines. A slight growth in the automobile market and stricter emission regulations in China are further increasing the demand for palladium. Although the production of palladium from mines and from recycling slightly exceeds demand, there is still a market deficit of 17 tons. Strikes by South African mine workers could exacerbate this deficit.
The situation might ease if economic growth slows in China and the USA, the automotive heavyweights. Based on the continuing palladium shortage, the price per fine ounce of palladium is expected to range between US $1,130 and US $1,650.
Medium- and long-term trends in the precious metals industry
For the medium to long term, the Heraeus Precious Metals sees two major trends that will affect the precious metals industry:
1. The primary production of platinum and palladium from mines will decline during the next ten years. The recycling of platinum group metals (PGMs) will acquire an increased importance.
Not sufficiently high prices and high and further growing cost of mining have led to a consolidation in industry within the last years, especially in the field of PGMs.