Jan 5, 2007

Precious metals to remain bullish as industrial demand offers price support

Precious metals to remain bullish as industrial demand offers price support

Dorothy Kosich
'04-JAN-07 08:00'

RENO, NV (Mineweb.com) --Global bullion marketer ScotiaMocatta anticipates that investment interest will keep the precious metals outlook bullish this year, while industrial demand and new high-tech applications should provide solid support for prices.

In their January “Metals Matters” report, Canada’s ScotiaMocatta calculates that gold prices could trade up above $700 an ounce this year and even spike over $800/oz. “Overall we expect trading to spend most of 2007 in the $590/oz to $750/oz range, although spikes above $750/oz would not be out of the question.”

“With the rapid expansion in hedge funds, combined with the asset price acceleration over the past few years, the financial markets could be in for a volatile time,” the report acknowledged. “As such we feel the gold will play an increasingly important part in the financial markets in the year ahead.”

Observing that silver experienced a volatile, but generally bullish 2006, ScotiaMocatta forecast more of the same in the year ahead. Although more silver supply is expected, the report asserts “this will likely be offset by a lower level of official sales and scrap, and ongoing high levels of investment demand. In turn, this may well send prices considerably higher.”

Rising demand generated by new industrial applications may also cushion silver against an economic slowdown. Despite a growing surplus of silver these past three years, ScotiaMocatta determined that the “market has been in an exceptionally bullish mood.”

“In a nutshell this is due to the healthy pick-up in investor interest, and we see this continuing in 2007 as the global financial markets are likely to go through some turbulent times. Indeed, while the surplus remains relatively small, investor buying is likely to soak up the surplus. In addition, the level of official sales is expected to decline as governments have, in most cases, depleted their stocks. Also with the central banks looking to diversify out of their dollar holdings, it would not be out of the question to see some official buying of silver, especially as the gold market on its own is too small in this respect.”

ScotiaMocatta assumes that lower metals prices “are expected to spur further investor demand” in silver, which could boost prices to “rechallenge the $14/oz level and move on to test the summer highs at $15.25/oz. In a bullish environment, it would not be hard to see prices spike higher above $16/oz.”

Meanwhile, ScotiaMocatta forecast a less volatile trading pattern for platinum this year will keep prices holding within the $950/oz to $1,400/oz range. They noted that platinum demand is expected to remain robust in 2007 despite a slowdown in economic activity that could hurt car sales in some regions. As the use of catalytic converters is spreading geographically, overall platinum demand is expected to increase 9% this year, according to ScotiaMocatta’s forecasts.

The demand for auto catalysts, which makes up 50% of palladium demand, also foretells a robust outlook for palladium this year. ScotiaMocatta determined that palladium also has “a number of strong industrial applications, many of which are growth markets, which should provide some cushioning against an economic slowdown.” In the meantime, “there is a healthy demand from long-term investors who seem to be quietly soaking up the market’s surplus by buying any weakness.”

Nevertheless, ScotiaMocatta predicted a less bullish year for palladium in 2007 with prices generally trading between $270/oz and $360/oz.

Finally, ScotiaMocatta concluded that “the fundamentals for rhodium remain second to none and even though demand only grew 2% in 2006, the limited supply is keeping the market extremely tight. Indeed, demand from the autocatalyst industry is greater than production, with the balance made up from scrap supplies and stocks.” Meanwhile, the chemical, electrical and glass-making industries also consume 15% of total rhodium demand.

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