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2017 Forecast Survey

Analysts are Bullish
Across the Board for All Four Metals

Top LBMA Forecaster
Looks for Gold to Rise 8% in 2017

Contributors to the London Bullion Market Association (LBMA) 2017 Forecast Survey are bullish across the board for all four metals. Analysts are forecasting that the average gold price in 2017 will be 5.3% higher than the average price in the first half of January 2017. They are slightly more bullish about the prospects for silver prices, with an increase of 7.1%, but less bullish about PGM prices. For platinum, they forecast an increase of 4.9%, but expect a more modest outlook for palladium, with a forecast increase of just 2.4%.

Forecast contributors are predicting that the Gold price will average $1,244/oz in 2017, 5.3% higher than the first half of January 2017, but broadly in line with the actual average price in 2016. The analyst who scooped first prize in the 2016 Forecast, for gold and silver, Joni Teves, Precious Metals Strategist, UBS Ltd., is the most bullish, forecasting an average price of $1,350/oz (see her forecast below for gold and silver), whilst Bernard Dahdah, Precious Metals Analyst, Commodities Research, Natixis, who claimed first prize for palladium in the 2016 Survey is the most bearish with his average forecast of $1,110/oz.

2017 will certainly be an eventful and unpredictable year given the high degree of geopolitical uncertainty, with a more nationalistic US President in residence and the indications that the UK will pursue a hard Brexit in its negotiations with the EU. There is also the prospect of further uncertainty with elections to be held later in 2017 in both France and Germany, as well as the potential for tensions between the US and China.

Analysts are predicting that the gold price will trade in an average range of $1,101/oz to $1,379/oz. Greater uncertainty should prove positive for gold as could higher inflation if the new US administration adopts reflationary policies. On the downside are the anticipated three US rate hikes in 2017, a stronger US currency and rising stock prices as well as continued weak demand from both China and India.

Analysts are marginally more optimistic about the prospects for Silver prices in 2017. They forecast that the price will increase by 7.1% to an average of $17.77/oz, with prices expected to trade in an average range of $15.13/oz to $20.66/oz. On the upside, analysts cite geopolitical uncertainty and a stronger economic outlook boosting industrial demand (which accounts for more than half of physical consumption); of new solar plants, especially in China is likely to boost demand from the photovoltaic industry. Negative influences on the silver price include the potential for higher Fed rates and yields, the risk of the Trump administration pursuing a damaging trade policy, as well as potential for a drag on prices given that silver comes into 2017 still burdened with a relatively large speculative overhang from both the ETF and the futures markets.

Analysts are less bullish about the prospects for PGM prices in 2017. Platinum prices are forecast to increase by 4.9% to an average price of $1,014/oz, which is $27 above the actual average price in 2016. Analysts are forecasting that the price will trade in an average range of $865/oz to $1,167/oz. Mine supply is expected to be relatively flat and prices are expected to be dragged around by the rand/US dollar exchange rate and uncertainty in the global economy. Positive influences on the price include expectation of continued strong demand from the auto diesel market, whilst negative factors include potential for higher interest rates in the US and a firmer US dollar as well as the prospect of weak demand from the jewellery sector.

In contrast to last year when forecast contributors were most bullish about the prospects of Palladium, analysts are most bearish about the price in 2017, forecasting only a modest increase of 2.4% to $762/oz. They expect the price to trade in an average range of $634/ oz to $872/oz, with firmer supply and the risk of a slowdown in global car sales keeping a lid on prices.

Joni Teves, UBS Ltd.
Most Accurate LBMA Forecaster

Joni Teves, Precious Metals Strategist, UBS Ltd. finished first for her forecasts for both gold and silver in the 2016 Forecast Survey. For gold, she forecast $1,225, just 2% off the actual average of $1,251. Ms. Teves took the most bullish position of the 36 analysts, with a forecast of $17.20, impressively a mere 6 cents off the actual average price for the year of $17.14. Here are her forecasts and commentary for gold and silver in the 2017 Forecast Survey.

Gold 2017 Forecast

Joni Teves expects a range of $1,150 to $1,450 and an average price of $1,350 for Gold in 2017. Her range for Silver in 2017 is $15.80 to $21.00 with an average price of $18.60.

“We think gold allocation within a portfolio is warranted given a relatively benign rate environment, modest growth acceleration and elevated macro risks. We think further gains in gold are likely to be driven by a continuation of strategic portfolio allocation from a diverse set of investors.

We’ve moderated our view to reflect the move in rates in the past few months and the greater downside risks ahead amid the potential for expansionary fiscal policy in the US to push growth and real yields sustainably higher. However, we think it’s premature to call for a regime change. There’s still a lot of uncertainty around this and much is required to overcome the environment of low rates and tenuous growth.

In terms of gold’s supply/demand fundamentals, we think these are broadly balanced, yet probably not strong enough to provide the same support as in 2013 if the market comes under similar pressure. We are more concerned about demand rather than supply – physical offtake has been weak and although there have been indications of resilience in core demand in key markets such as China and India, local policy developments could present some downside risks for physical demand up ahead.

Ultimately, we think gold remains underowned and macro conditions should continue encourage even broader participation in the gold market. Looking ahead, we will be watching factors that affect real rates. A key focus right now is US fiscal policy and the impact on growth and inflation. Monetary policy at the Fed and other key central banks, nominal yields, oil and commodity prices are other factors to watch. We will also monitor cross-asset correlations, as well as trends in physical markets by looking at trade data, differentials between local and international gold prices, changes in the loco swap rate between Zurich and London, scrap flows and producer hedging activity.

Silver 2017 Forecast

We expect silver to track gold higher although relative performance is likely to be choppy. In relative terms, silver’s performance versus gold is influenced by risk sentiment. Although price action is determined more by investor interest rather than fundamentals, silver’s large industrial demand component suggests that it’s poised to benefit from a positive growth scenario – in turn, we would expect silver to outperform gold during risk-on.

In contrast, as silver is not typically considered a strategic asset, it tends to underperform gold during risk-off. Market participants are likely to be attracted by short-term trading opportunities that silver offers.

We expect investors to continue watching the gold:silver ratio closely for signals to get involved. However, participation is likely to remain short-term in nature, and silver is unlikely to be considered in the same way as strategic gold investment.

In absolute terms, we think there’s more scope on the downside for silver, driven by the same downside risks gold is facing from the possibility of sustainably higher yields. However, in terms of relative performance, there could be some modest bias in favour of silver amid the potential for stronger growth and positive risk sentiment, which should have moderate upside implications for silver from our base case.

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