Every year, the London Bullion Market Association (LBMA) publishes its precious metals forecasts for the year ahead, based on the predictions of various analysts and experts. These forecasts are eagerly awaited by the industry and investors, as they provide insights into the trends and factors that may affect the prices of gold, silver, platinum and palladium. Bullion analyst Sanjiv Arole reviews the hits and misses of the LBMA precious metals forecasts for 2023, and compares them with the forecasts for 2024. He also analyses the reasons behind the discrepancies and the challenges faced by the forecasters in making accurate projections.
January not only heralds a New Year, but along with come the New Year resolutions, what the stars foretell as well as prophets of doom and harmony. Astrologers, palmists, etc., come to the forefront – dead or alive. The usual popular suspects are Nostradamus, Bejan Daruwalla, Aryabhatta, et al. Even the roadside astrologer with a parrot to predict one’s future is much in demand. In the precious metals industry too, the LBMA forecast on precious metals prices for the year ahead is the ‘piece de resistance’! The first couple of months are a busy time for precious metals analysts. The winners of the previous year are declared first and then the LBMA precious metals forecasts are announced later. Before analysing the winning forecasts for 2023 and then looking at the forecasts for 2024 here are some significant observations on LBMA forecasts over the last few years.
In 2020, the year of the pandemic, the LBMA forecasts for 2020 were; gold: $1,558.8 per ounce; silver $18.21 per ounce; platinum $1,005 per ounce and palladium $2,116 per ounce. Then, the pandemic took over and all the forecasts went astray. Gold was off by over $200 per ounce, silver by more than $2 per ounce, platinum was lower by over $120 per ounce and finally palladium’s forecast was less by around $75 per ounce. Much water has flown under the bridge since then. Come 2024, and the forecasts have undergone a sea change. As compared to 2020, gold’s average price forecast for 2024 at $2,059 per ounce is at least 32% higher. In silver, the increase in forecasts between 2020 and 2024 was over 36%. It was over 56% if one compared 2021 with 2020. As far platinum is concerned, the forecasts between 2020 and 2024 there is virtually no change with forecasts of $1,005 per ounce and $1,015 per ounce respectively. However, palladium was a different kettle of fish altogether. As against a forecast of $2,116 per ounce in 2020, its forecast is down by nearly a 100% a $1,060.10 per ounce in 2024. If one compared 2021 forecasts with 2024 then the fall is over 130%. In the intervening period, there was turmoil in palladium as the metal price had a roller coaster ride between an all-time high of $3,440 per ounce in 2022 (shortly after the commencement of the Ukraine war) and a low much below $1,000 per ounce and even below the platinum price at times.
Let us now look at and analyse the LBMA winning forecasts for 2023. It was all at sixes and sevens with the average precious metals forecasts, actual average forecasts and the winning forecast numbers. In gold, the LBMA average gold price by analysts was $1,859 per ounce while the actual average LBMA gold price $1,940.54 per ounce. The winner’s price forecast was $1,950 per ounce. The over 4.4% difference in the average price forecast and the actual average price for gold could be attributed to a few factors. The gold price crossed the $2,000 per ounce mark a number of times during the year. The gold price was under pressure from the strong USD, the high interest rate regime unleashed by US Fed chief Jerome Powell, good US economy numbers, etc.
However, the halt in rate hike coupled with rate cuts anticipated in 2024 buoyed gold, then the continued Ukraine of over 18 months and the sudden flare-up in the middle-east with the over the top Israeli response to the Hamas carnage inside Israel in October 2023 saw gold scale its all-time high of $2,078.40 per ounce 28th December (London pm fix), intra-day price of nearly $2,150 per ounce in early December (4th).
Silver was more subdued as the variations in the actual average silver price and the average price forecast by LBMA analysts was just $0.31 per ounce ($23.65 v/s $23.3). Even the winning forecast at $23.30 per ounce was quite close. The high interest rate regime probably impacted silver’s industrial demand as costs became much higher for producers as well as consumers.
Platinum saw more volatility due to its industrial nature as well the rapid shift from palladium to platinum seen due to embargo on goods from Russia. Against an average forecast of $1,080.40 per ounce, the actual platinum price was $964.98 per ounce, a decline of 11.9%. The winning forecast was in-between at $988 per ounce.
Palladium was far more volatile with over 35% price difference between the actual and average price forecast made by LBMA analysts. The winning forecast at$1,550 per ounce was somewhere in the middle of it all. Price forecasting in palladium was indeed very difficult with the Ukraine war, sanctions against Russia, supply constraints and actual numbers from Russia and the rapid shift from palladium to platinum in industrial usage, particularly automobiles.
Forecasts for 2024
Normally, The LBMA gives the analysts around 15 days in the month of January to observe the trends before making their forecasts for the year. Last year, this lead time was 18 days. However, in 2024, this was cut to just 11 days as they were asked to submit their forecasts by the 11th of January. Probably, the LBMA did not wish for the analyst’s views to be overwhelmed with talks about rate cut decision to be made by the US Fed later in the month. The broad trends of the survey were: For gold, the general consensus was that gold would scale higher during the year. However, the expectations were still tempered with caution. In silver, analysts agreed predict a higher price and followed the trends set by gold. However, the range predicted was double the actual range seen in 2023. As far as platinum was concerned most analysts predicted modest gains, but with greater price volatility. Everyone seemed unanimous with their forecast for palladium. They seemed bearish with a prediction of much lower prices than in 2023.
The analysts were also asked to identify the top three drivers of the prices, gold in particular were: US monetary policy (25%); Central bank activity (22%) and geopolitical risks (22%). The underlying factor was the strength or weakness of the USD. The other factors were (in order of frequency): global interest rate trends, investor behaviour shifts, election de-stability, recession risks, ETF net redemptions, sensitivity to physical demand, US unemployment, and risks associated with small-medium banks and industries in the US and China.
Gold: Analysts predicted only a moderate rise of 6.1% over the actual average price of gold in 2023 of $1,940.54 per ounce with a $2,059 per ounce average price forecast for gold. However, the highest price of $2,405 per ounce was also predicted, while the lowest price predicted was $1,781 per ounce. Therefore, a range of $624 per ounce was seen indicating some price volatility in gold. It is pretty evident that analysts do not expect a runaway gold price, given that the price averaged $2,040.18 per ounce in the first 11 days of January, the cut off date for analysts. Even though most parameters seem positive for gold the analysts seem vary. Probably, the experience of 2023 is still fresh in their minds as most of them were bearish on the gold price last year.
Silver: As usual silver followed gold with analysts forecasting an average silver price of $24.80 per ounce, a 6.2% rise over the actual average price of $23.35 per ounce in 2023. However, this predicted price was still 7.1% higher than the actual average silver price in the first 11 days of January. But, the predicted silver price range of $14 per ounce (high of $32 per ounce and a low of $18 per ounce) is more than double the range of $6 per ounce seen last year, indicating a more volatile period for the white metal. Interestingly, silver is projected to scale a high of $32 per ounce for the first time since 2013.
Platinum: Like gold and silver platinum too has been predicted a 5.2% rise in 2024 at $1,015 per ounce over the 2023 average price of $964.98 per ounce. This rise was slightly more if one compared the forecast with average platinum price in the first 11 days of January. However, the $529 per ounce range could indicate choppier times for platinum. If one compares the lowest of lows prices of palladium and platinum of $800 per ounce and $550 per ounce, respectively. Then, there is enough possibility of the palladium price falling below that of platinum again in 2024.
Palladium: When one thinks of palladium the thing that comes to mind is the state of the current West Indian cricket team shorn off all its bygone glory and at the bottom of the ladder. Only a couple of years ago palladium had scaled its all-time high of $3,440 per ounce, way ahead of the rest of the pack. Now, with a low of $550 per ounce predicted by an analyst, palladium is literally scrapping the bottom of the barrel. And the problem is that it is not certain as to when the free fall will be stopped. With the substitution of palladium with platinum going full steam unabated, palladium has a bleak future indeed.
Finally, the Russia-Ukraine war has entered its third year, while Hamas-Israel conflict has moved into the 6th month. Both the conflicts seem nowhere near the end. So, geopolitical tensions are not like to subside anytime soon. Then, interest rate cuts are expected sooner than later. It is not a question of if, but, when. Rate cuts could lead to inflation and there is fear of recession still looming large over the horizon. Gold seems destined for higher prices in the year in spite of the ambiguity by the Fed on rate cuts.
Silver and platinum want to cash in on rate cuts to boost supply and demand. However, a recession could spoil their dream. The best course of action for these two industrial metals will be to remain in gold’s slipstream and enjoy the free ride. At the other end of the spectrum is palladium. It seems destined for lower prices as it hits the rock bottom. Even a miracle seems improbable at the moment. It all seems to have been sorted out for the precious metals. Now, one only has to wait for the year to unravel itself. Unless, destiny springs something out of the box.