While much of the global economy is suffering from high inflation and increasing interest rates, the precious metals sector is tipped to remain strong for the foreseeable future.
The London Bullion Market Association’s (LBMA) 2023 Annual Precious Metals Forecast Survey found that most analysts are predicting growth for gold and silver this year.
According to a survey of global analysts, the main drivers for growth that were listed included the US dollar and the Federal Reserve’s monetary policy at 43%, whilst second was inflation (14%), and third was geopolitical events (11%) – a factor not deemed significant in last year’s survey.
The analysts’ average forecast for the price of gold in 2023 is US$1,859.90, with the highest price predicted to be US$2,025. The average silver forecast is US$23.65, with the highest predicted price of US$27, and for platinum the predictions were US$1,080.40 and US$1,241 respectively.
Gold provides mixed results
The World Gold Council’s latest ‘Gold Demand Trends’ report shows that while gold demand (excluding OTC) was 13% lower year-on-year, a recovery in the OTC market propped up total gold demand to 1,174t, a slight one per cent increase compared to Q1 2022.
With the price near record average highs for the first quarter at US$1,890/oz, a mixed picture for gold in Q1 exemplifies its diverse and global sources of demand.
Central banks helped boost demand, adding 228t to global reserves, which was a Q1 record high in this data series. Sustained and significant purchases from the official sector underscore gold’s role in international reserve portfolios during times of market volatility and heightened risk.
In comparison, jewellery was flat in the first quarter at 478t. Chinese demand regained ground, reaching 198t in its first quarter of unfettered consumer activity since lockdown restrictions were lifted. This offset weakened demand in India, where consumption fell by 17% year-on-year to 78t in Q1 2023. The sharp increase in domestic gold prices was the primary factor impacting purchases.
Record bar and coin demand
Bar and coin investment strengthened 5% year-on-year to 302t, although there were notable shifts in key markets.
US bar and coin demand hit 32t in Q1, the highest quarterly level since 2010, and was driven primarily by recession fears and a flight-to-safety amid the banking turmoil. This increase helped offset weakness in Europe, and particularly Germany, where there was a 73% drop in demand.
This notable decrease was primarily the result of real interest rates turning positive and the rise in the euro gold price which encouraged profit-taking.
On the supply side, there was a slight increase in Q1 total gold supply to 1,174t, with marginal 2% growth in mine production and a 5% uptick in recycling driven by the higher gold price.
“Against the backdrop of turmoil in the banking sector, ongoing geopolitical tensions, and a challenging economic environment, gold’s role as a safe haven asset has come to the fore,” Louise Street, senior markets analyst at the World Gold Council, said.
“In this landscape, it is likely that investment demand will grow this year, especially with waning headwinds from the strong US dollar and interest rate hikes.”
Total global silver demand at record high
The Silver Institute has reported record highs for silver demand in 2022 and a high level of interest to continue in 2023.
The Silver Institute found that all major silver demand categories achieved record highs in 2022, pushing total silver demand to a new high of 1.242Boz last year. Silver industrial demand rose by five percent, physical investment increased by 22%, and jewellery and silverware rose by 29% and 80%, respectively, leading to the total global silver demand milestone. Since 2020, the global total has increased by 38% as world economies recover from the pandemic.
Along with record silver demand and lower mine production, the silver market achieved its second consecutive annual structural deficit, at a significant 237.7Moz last year.
The Institute’s World Silver Survey 2023 found that following a strong recovery in 2021, total silver demand took a major leap last year, with total offtake growing by 18%. With the exceptions of slight drops in photographic and brazing alloys demand, all other fabrication sectors achieved new highs.
Demand from the industrial segment posted another record in 2022, of 556.5Moz. Some of these gains reflected green economy applications, particularly the significant growth in photovoltaics (P.V.), which consumed 140.3Moz of silver in 2022.
Silver supply down
Global mine production fell marginally last year to 822.4Moz. This followed strong growth in the previous year when production rose by nearly 6% as mines recovered from the disruption caused by the pandemic.
Last year’s decline resulted from lower by-product output from lead/zinc mines, particularly in China and Peru.
Outlook for 2023
This year is expected to be another of solid silver demand. Industrial fabrication should reach an all-time high, boosted by continued gains in the P.V. market and healthy offtake from other industrial segments.
The Silver Institute said that although bar and coin demand and jewellery fabrication are expected to fall short of last year’s exceptional levels, both are forecast to remain historically high. Supply, by contrast, is expected to achieve only low single-digit gains.
The Institute is forecasting another large deficit for silver, amounting to a projected 142.1Moz, which would be the second-largest deficit in more than 20 years.
Adding up the supply shortfalls of 2021-2023, global silver inventories by the end of this year will have fallen by 430.9Moz from their end-2020 peak. That is equivalent to more than half of this year’s forecasted annual mine production, and more than half of the inventories presently held in London vaults offering custodian services.
Jump in platinum investment demand to over 400,000oz
The first quarter of 2023 saw a surge in investor interest, driven by heightened global uncertainty, platinum’s strong demand growth and concerns about risks to mine supply, according to a recent reportfrom the World Platinum Investment Council.
The council found that bar and coin investment jumped by 71% year-on-year in Q1 2023 to 102Koz, propelled by a marked recovery in Japan. The council tipped this trend is set to continue for the full year, with an increase of 79% forecast.
Meanwhile, net platinum ETF holdings grew by 43Koz in Q1 2023, reversing the previous six quarters’ net disinvestment. Again, this trend is expected to continue in 2023. The result will mean net investment demand of 433Koz in 2023 – a swing of 1,073Koz in 2022.
Record industrial demand
Industrial platinum demand grew 8% in Q1 2023, driven by growth in chemical demand of 108% due to paraxylene capacity additions in China. On a full-year basis, LCD glass capacity additions in China are expected to offset closures in Japan and result in glass demand for platinum growing by 76% year-on-year to 730Koz. Overall, this year is forecast to be a record year for industrial demand, growing by 17% year-on-year to 2,628Koz.
Automotive demand up strongly
Automotive demand rose 9% to 806Koz in Q1 2023, partly aided by higher vehicle production, but mainly on increased platinum use per vehicle. On a full year basis, global automotive demand is expected to rise by 12% in 2023 to 3,255Koz driven by several factors.
Firstly, heavy-duty vehicle (HDV) production is forecast to grow by 6% in 2023, with output in China jumping by as much as 26%.
The report suggested that tighter emissions legislation, particularly in China, will result in higher loadings, especially for HDVs and non-road vehicles. Lastly, growing platinum for palladium substitution in gasoline after-treatment systems will further boost platinum consumption. This has meant a significant further upward revision to the substitution estimate for 2023 to 615Koz.
