The price of gold this year will average $1,875 per troy ounce as low or negative interest rates plus political uncertanties stoke investor interest in more diversity and less risk for their portfolios, Barclays Capital said Thursday.
The investment bank also forecast an average 2012 silver price of $32.50, ranging from a high of $45 per ounce to a low of $22 per ounce.
Barclays, which expects gold to range this year from a high of $2,200 to a low of $1,400, said recent near-term hurdles for gold have included softer physical demand, the relative strength of the dollar, technical selling and muted risk appetite.
Longer term, Barclays believes gold possesses structural support from negative real interest rates and rising inflationary pressures, as well as continued central bank buying. Barclays expects uncertainty to continue to surround the financial markets and sovereign debt, and growth in investment demand despite price corrections.
For the gold rally to be derailed, physical demand would need to stop responding to price dips, and sticky ETP holdings would tumble as alternative assets become more attractive and significant producing hedging becomes likely.
Silver, meanwhile, displayed its breadth of volatility last year, tumbling from the strongest performing precious metal in the first half of 2011 to close the year as the weakest. Silver also reaffirmed its dependence on investment demand.
According to Barclays, silver mine supply continues to set new records. Growing investor demand for silver, coupled with healthy industrial consumption, catapulted silver prices to 31-year highs, but industrial demand now looks vulnerable while investor appetite has recoiled.
Exchange-traded product (ETP) holdings fell almost 1,000 metric tons in 2011, while speculative positions are at their lowest since April 2003. In turn, investor positioning in silver is much cleaner, allowing physical demand to set the floor for prices.
Barclays expects silver to remain the most volatile precious metal and take its cue from gold prices hitting new highs to outperform its sister metal.
Platinum price dips below $1,700 last year were cushioned by both demand and supply side factors. Strong physical demand from China, combined with rising cost pressures in South Africa, set a stable floor for prices. However, downside support has become more fragile as the rand has weakened, lowering the cost floor, while demand in China has become less responsive to price dips.
Thus, the macro environment is poised to support gold's premium over platinum for the bulk of this year. With only modest growth in consumption expected in terms of industrial and investment demand and continued growth in auto-catalyst recycling, Barclays forecast the platinum market will remain in surplus in 2012, albeit only modestly. But given that platinum prices are too low to encourage future supply, mine supply growth remains vulnerable, especially given safety and labor union stoppages in South Africa. Platinum prices are forecast to average $1,650 an ounce with the high at $1,900 and low at $1,290.
While ETP appetite had previously emerged as palladium's savior, it proved it was not only a source of demand but also a substantial source of supply, flipping from net demand of over 1Moz in 2010 to net supply of over 500koz last year. Disinvestment has overshadowed palladium's usual wildcard, but potentially depleted stocks, alongside investor appetite stabilizing, are set to send the market back into deficit in 2012.
Palladium prices are forecast to average $795 an ounce with the high at $950 and low at $575. While palladium does not possess the same cost support as platinum and could be exposed further on the downside, given the macro uncertainty, the upside potential for palladium is also greater than for platinum, given the potential exhaustion of state stock releases. Meanwhile the non-investment demand picture appears relatively robust, given growth in auto production in China and the US, the implementation of tighter emissions legislation and the substitution of platinum in diesel vehicles.