London, 26 July 2011

Amid the heightened macro uncertainty surrounding the US debt ceiling and European sovereign debt, the latest Reuters analyst poll reveals a divergence in views across the precious metals sector. Consensus forecasts are for prices across the complex to gain momentum in H2 11 compared with H1 11, with the exception of platinum.

Average prices are expected to rise further next year ... with the exception of platinum. Since the Reuters poll was conducted at the start of this year, gold, silver and palladium price forecasts have been revised higher for 2011, while platinum has been downgraded similarly for next year, consensus forecasts have been revised to the upside for gold, silver and palladium, but to the downside for platinum.

"We do expect further upside for prices in H2 11 relative to H1, with gold finding support from a raft of factors. The macro environment has become increasingly supportive for gold, reinvigorating investment demand that had slowed at the start of the year," according to Suki Cooper, Commodities Research with Barclays Capital.

Although prices have hit fresh highs, profit-taking and the release of less-liquid scrap supply could temper gains amid a seasonally slow period for demand.

"But it bodes well for prices that physical demand continues to emerge upon price dips, and we retain our view that real interest rates turning positive will mark the turning point for gold," says Cooper.

Concerns over demand as well as investment demand slowing down has weighed on the PGMs, indeed palladium flows for the year to date are in negative territory. However, the supply side remains vulnerable given the biennial wage negotiations currently taking place in South Africa as well as potential power constraints and political uncertainty in Zimbabwe surrounding mine ownership.

"In our view, silver remains increasingly dependent on investment, and the recent pickup in ETP flows coinciding with prices gaining momentum has highlighted its heavy dependence. Our gold and silver forecasts for 2011 are broadly in line with the Reuters poll and, while we expect the PGMs to struggle to gain traction in the near term, given our expectations for auto demand to recover towards the end of the year, we expect prices to gain momentum. We expect the PGMs to extend their gains in 2012 as the market balances tighten but we believe silver remains the precious metal with the least fundamental support and, thus, susceptible to corrections," according to Cooper.

Ends --

Commodities Now