- 2014 was a year with two faces…
- …a strong first half followed by an aggressive sell-off in prices in the second half
- The start of 2015 shows some divergence, but we expect general price weakness to come soon
2014 was a year with two faces, a strong first half…
In 2014, silver prices lost more than 19%, while platinum prices were down by more than 11%. Meanwhile, palladium prices rose by around 11%, while gold prices lost only 1.4%. This sharp divergence is rather surprising, especially if we take into account the strong start of the year. The first half of 2014 showed strength of precious metal prices across the board with increases of 7 to 17%. This was in an environment of a neutral US dollar and strong demand expectations. Since July of 2014, the picture has completely changed. The US dollar has started its ascent mainly driven by weakness in the euro and the yen. This has been the result of diverging paths in monetary policy and growth in the main global economies.
…followed by aggressive sell-off in the second half
In the second half of 2014, precious metals lost between 5 (palladium) and 25% (silver) and this had a dramatic impact on the year’s overall performance. The main reason for weakness in precious metal prices in the second half of 2014 has been US dollar strength. Palladium has proven to be rather resilient because the ongoing strength in the US economy, a main source of industrial demand. Meanwhile, platinum prices lost substantial ground, because of the downward adjustment in expectations about eurozone growth, an important market in terms of platinum demand. Silver was completely out of favour. Worries about the state of the Chinese economy were a main contributor to silver’s weakness. China is the most important market for silver industrial demand and silver jewellery demand. What is more, it appears that silver traded as gold substitute at times that gold prices did not move much lower.
Start of 2015 also shows divergence
Since the start of 2015, precious metal prices have diverged again. For example silver prices gained around 4% while palladium prices lost around 1% (see graph on the left). Divergence in precious metal prices has happened in an environment where investor sentiment has deteriorated. This has been the result of political uncertainty in Greece and fears that lower oil prices are also reflecting weakness in the global economy. What is more, headline inflation in the eurozone moved into negative territory, fuelling deflation fears and increasing expectations of more aggressive monetary easing by the ECB. As a result, investors have bought gold and silver for safe-haven argument. They have outperformed platinum and palladium prices. In the case of platinum and palladium, safe haven demand was overshadowed by US dollar strength and fears about the strength of the global economy.
Our outlook for 2015 and 2016
For the first half of 2015, precious metal prices are likely to fall reflecting US dollar strength and upward adjustments in US rate hike expectations. While we expect gold prices to remain under pressure up to the end of 2016, for the other precious metals positive global growth outlook will dominate and support prices.