Tell us about your background and specific expertise at Metals Focus.
I am one of the founding partners and managing directors of Metals Focus. Together, with one of my business partners, we manage a global team of analysts who puts together our data, forecasts, reports, and presentations. I also tend to do a fair bit of our client facing work, servicing our clients and partners, and presenting at key conferences.
Looking at gold supply and demand forecasts, where are you seeing strong demand across the APAC region and China?
We’ve been surprised at the resilience of East Asian demand, despite the very high price environment. Demand for jewellery in China, the region’s biggest market by far, has continued to be healthy so far this year, while the buying of investment products, like small bars and coins, has also grown considerably. We had a very strong Chinese New Year holiday period for gold and the signs are strong that consumer/investor appetite for the metal remains healthy.
There is undoubtedly pressure building from the higher price environment — at the end of the day, consumers’ purchases of jewellery are limited by their budgets and higher gold prices do often translate into less grams bought. Concerns about the economy are also impacting consumer sentiment and discretionary purchases in China. This is why, despite the very strong start to the year, we forecast a marginal decline in Chinese jewellery consumption overall in 2024. Bar and coin demand, though, should rise, reflecting the bullish sentiment towards gold in the country and concerns about local equity and property markets.
Elsewhere in East Asia, demand is also decent, and we expect this will continue. Our projections for all key markets in the ASEAN region, for instance, see strong year-on-year gains in both jewellery consumption and retail bar and coin investment demand. While not part of APAC, I think it is also worth making a brief comment on India, given it is the second biggest physical gold market after China, both jewellery and retail investment demand in the country have been healthy so far, and local consumers seem to have been far quicker to adjust to higher prices than we had expected. We see single digit percentage gains in demand in the country this year.
What have been some of the major impacts on the gold market so far this year? Where do you see things shifting as we move further into 2024?
Clearly the outlook for US interest rates remains a key driver for gold prices and expectations of rate cuts later in the year have been fuelling rallies. I think rallies in other assets are also helping gold — the 26% rise in the S&P500 since late October will have no doubt resulted in some gold investment for portfolio diversification purposes. Healthy physical supply-demand conditions have no doubt also been supportive for gold.
Looking ahead, given the explosion of speculative buying we saw in the past few weeks, there is scope for a correction in the near-term. However, once some of the speculative overhang is cleared, we believe gold is well positioned to recover again strongly. We thus think we will see new all-time records again in the second half of the year.
Can you comment on the impact that the physical markets might have on the overall market?
The robust consumer physical demand backdrop, which we partly touched upon earlier when we talked about Asia, is certainly helping prices. So too is the relatively limited response of recycling — sure we are seeing bigger volumes, but nothing like what we had seen during previous bull markets. Now, physical supply-demand conditions rarely fuel big gold price rallies. These are normally driven by institutional or high net worth investor demand for bullion, whether in metal accounts, derivatives, or vaulted stocks. Still, the healthy fundamental backdrop we are seeing for gold is providing an ever-increasing floor for prices, which has ultimately enabled the professional investor community to take it to new all-time-highs.
Clearly the outlook for US interest rates remains a key driver for gold prices and expectations of rate cuts later in the year have been fuelling rallies
There was a lot of talk about the influence of central bank purchasing on the gold market last year. What has the actual impact been?
Central bank demand for gold in 2023, but also in 2022, was remarkable. In both years, global net official sector purchases, which include central banks and other sovereign institutions, such as sovereign wealth funds, exceeded 1,000t. To put this in perspective, this compares to annual net buying of just over 500t during the previous 10 years. Clearly this has been very positive for gold and in my view the key reason behind the metal’s price resilience, in the face of the most aggressive, both in terms of speed and extent, US policy rate increases in recent history.
Shifting to the white metals, can you explain the price parity between platinum and palladium and what this will mean for the metals. Is the trend likely to persist into 2024?
Palladium has been underperforming compared to platinum for quite some time now and the two metals’ prices reached parity recently, albeit briefly, for the first time since 2018. The general trend has been reflecting worsening fundamental conditions for palladium and improving ones for platinum. Vehicle electrification, the semiconductor, and other automotive parts supply crisis in the aftermath of the pandemic, efforts to shift some of the palladium in gasoline catalysts to platinum due to their price difference and rising recycling from spent autocatalysts have been headwinds for palladium. The pressure on palladium prices has been amplified by speculative shorting and stock releases. At the same time, platinum has been benefitting from higher demand from the heavy-duty diesel sector, the substitution efforts and healthy industrial demand.
The medium to long term outlook certainly continues to support the recent relative price trends between the two metals – we expect palladium will shift to a structural surplus over the next few years while platinum will likely remain in a deficit for a few years to come. Our long-term price projections see the platinum price establish a hefty and sustained premium over that of palladium. However, this will probably not happen in 2024. Given the sizeable speculative short positions that are in place at the moment for palladium and the fact that its market will likely be in a fundamental deficit for this year, we see some near-term price upside for the metal, and we expect it will remain higher than that of platinum for much of the rest of this year.
Platinum and palladium are largely impacted by the growing electric vehicles economy. What is your outlook here?
Vehicle electrification is a clear threat to PGMs demand. The expected growth in battery electric vehicles’ (BEV) market share in the next few years is the main driver of the shift in palladium’s deficit conditions that prevailed for most of the previous 15 years to structural surpluses. While BEV proliferation is also a negative for platinum, the impact of this trend on its fundamentals is less dramatic. This is partly due to autocatalyst applications accounting for a smaller share of global platinum demand. It is also partly due to platinum’s sizeable heavy duty autocatalyst demand component being less impacted by electrification, as battery buses and trucks are not as popular as passenger vehicles.
