Many of the factors that havesupported the bull market for the precious metals remain in place. Inflationary pressures associated in part with the dramatic rise in commodityprices are continuing.  Uncertainty in the financial markets as thesub-prime crisis continues to unravel remains an issue.  The other keysupporting factor is the increasing acceptance of commodities as an asset class. However these positive fundamentals do not necessarily justify a straightprogression for precious metals prices.   

Natixis Commodity Marketsbelieves that the key trend will be the ability of the individual preciousmetals to hang onto their bull market gains.  In this regard, we slightlyfavour the platinum group metals with their relatively tight fundamentals,rather than gold and silver, which require continued buying from the investmentcommunity to support high prices.  We are forecasting an average annualprice of $875 per oz for gold and $16.50 per oz for silver, which impliesslightly weaker prices as the year progresses.

Going forward, we believe thatthe investment case for gold will remain strong throughout the rest of thisyear and, potentially, into 2009.  However this may not lead to new highsin the gold market.  Despite the efforts of monetary authorities aroundthe world to contain the impact of the sub-prime crisis on both financialmarkets and the global economy, their outlook remains questionable.  Inaddition, high commodity prices seem to persist, despite expectations of aslow-down looming ahead. 

The correction (at the time ofwriting) in the gold price below the $900 mark was well anticipated and, in ouropinion, is proving to be necessary for the market to gain some breathingspace.  Given the seasonal lull that the gold investment market oftenexperiences during the middle months of the year, it is possible that a rallywill not occur until the autumn.  The signs that the dollar has bottomedhave pressurised prices in recent weeks and this feature may continue to put acap on rallies. We are forecasting an average annual price of $875 per oz forgold in 2008, which suggests that we may have already seen the peak for the year,when prices briefly exceeded $1,000 per oz. 

We believe that silver prices arelikely to shadow (but slightly under perform) gold.  Industrial buyershave generally remained quiet.  Speculative participation has been muchreduced over the last month.  Whether speculators will return to themarket given its reputation for volatility is debatable, but any sign of upwardmovement may attract some momentum.  Overall, however, Natixis CommodityMarkets believes that the peaks are now behind us.  We are projecting anaverage for 2008 of $16.50 per oz for silver, which implies slightly weakerprices as the year progresses. 

The first quarter of the year forplatinum, in particular, has been based around the metal's sensitivity toevents in South Africa.  This is likely to remain central to pricesin 2008.  Whilst energy will command the highest profile, the underlyingissues of safety and labour shortages remain as real as they were in2007.  In addition, with a continuing positive climate for investment andwith risk-aversion remaining a feature, Natixis Commodity Markets isforecasting platinum prices to remain positive in 2008.  We do not expectthe platinum price to fall below $1,700 for the remainder of the year, withrisks more biased to the upside.  We believe there is every possibility tomove to a new high of $2,400 before year-end.  For the year as a whole,Natixis Commodity Markets is projecting an average annual price of $1,950 peroz. 

For palladium, we are forecastingan average annual price of $430 per oz, which is somewhat higher than what wehad forecast in our previous Quarterly Review ($385 per oz).  This isbased on our view that demand for palladium will continue to improve and thatthe outlook for autocatalyst and jewellery is looking promising.


Precious metal price outlook 2005-2008









Cash price $/oz


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