The gold, silver, platinum and palladium markets will retain their upside potential in 2011 with negative real interest rates remaining the principal driver, analysts at metals consultancy GFMS said on Tuesday.
Recent weak US jobs data and persistent debt problems in Europe suggest that an environment of negative real interest rates will continue, keeping the opportunity cost of holding the precious metals at zero while encouraging investors to seek gains from rising prices, they said.
Of the four precious metals, palladium has the strongest potential for further price increases given a tight supply-and-demand outlook, while a recent plunge in silver prices should make investors cautious about chasing rallies in that market, they said.
"As long as real interest rates stay where they are, there is upside potential for gold and silver," GFMS Chief Executive Officer Paul Walker told Reuters in an interview. "Another round of quantitative easing is not an impossibility." "The reason people buy gold is primarily in search of yield, not primarily for fundamental fear. Gold is an asset class when investors can't find yields anywhere else. It's all about investment.
Spot gold which hit a record high of $1,575.79 an ounce in early May, could rise above $1,600 an ounce within the next few weeks and could hit $1,650 in the next few months, Walker said. "Gold needs a huge volume of new money to keep it going," or about $100 billion per year, Walker said, but he added that the investment climate for gold remained positive, suggesting there was further scope for prices to rise.
Silver has greater underlying industrial demand than gold and is not as dependent on investment interest, but it remains highly sensitive to investment flows because of a lack of liquidity and depth in the market, he said. Walker said silver prices could rise to the high $40s or even top $50 an ounce.
"But what happened in the past couple of months should make people cautious," he said, referring to a 28 percent plunge in prices in just two weeks after silver hit a record high of $49.51 in late April. GFMS metals analyst Ayako Furuno told Reuters that silver would also gain from heightening global interest in renewable energy sources such as solar power, including in Japan.
Silver, an excellent thermal and electrical conductor, is also used in electronic applications such as conductors, switches and fuses, as well as in photovoltaic cells, LEDs and sensors. Of the platinum group metals, palladium is expected to see a very tight market this year as saleable palladium stockpiles in Russia "are very much near their end", Furuno said. "More production and scrap from auto catalysts won't be enough to compensate for the loss of supply from Russia," she said. She said palladium had the strongest upside potential among gold, silver, platinum and palladium, while it was not impossible that palladium prices would rise above $1,000 an ounce in 2011.
Comments
Comments are closed.