Bullion Forecast 2006

What will gold, silver, platinum and palladium prices do in 2006? While most bullion prices won’t likely approach their all-time highs, we predict good things for all the precious metals this year — palladium in particular.

Gold

The gold prediction for this year is arguably the toughest gold price forecast to make in a generation. Disconcertingly, the market appears to have migrated from something one could readily measure and weigh according to a reliable set of supply and demand statistics. External factors are likely to remain positive for gold, including: U.S. dollar weakness, inflation, geopolitical tension (Iran), fewer U.S. rate rises, U.S. trade deficits, avian flu, the (non) performance of other competing asset classes and a favourable tide across the commodity complex — particularly oil.

Internal factors look equally compelling — stagnating mine production, demand rising through the opening of new bullion exchanges and the increased availability of gold through structured products and other investment vehicles. In short — more of the same. After annual price increases of 23%, 25%, 5% and 20% over the last four years, we believe gold is in for another bumper year — just like the others: that is, slow in the first half of 2006, but accelerating in the second. We do not expect the word “gold bubble” to be in regular use — that comes in 2007.

Silver

After a stellar performance in 2004 and 2005 when silver notched up gains of 28% and 38%, respectively, the scene looks set for a further rally in 2006, but perhaps on a slightly more modest basis. Ongoing investor appeal is supported by solid demand across the commodity complex — in particular gold and oil. Silver’s fundamentals remain a little less compelling than most of the other metals sharing the same stable but that seems not to have mattered so far. Mine output is creeping higher and demand in some key sectors, such as photographic applications, seems to be flagging. That should not, however, spoil the party as investors are showing a propensity to buy and hold — so higher, but with some caution. We expect a successful breach of US$10 per oz. in 2006, but not the highs around US$14 per oz. seen in 1983 — yet.

Platinum

With platinum closing its supply deficit and prices nudging 26-year highs at the opening of the year, it would be tempting to suggest that prices can have little upside before jewelry demand collapses altogether and carmakers openly revolt. Perhaps not. The gap left by departing industrial and retail clients seems to be compensated (and then some) by incoming investor clients. It’s not the healthiest development for the long-term development of this important market, but you can’t stand in the way of free markets. Fears of a price bubble may, in part, be eased by concerns of economic stagnation in 2006/07 but new applications from the electronics and glass sectors seem to be partially compensating for a decline from the auto sector.

Palladium

Palladium forecasting is one of those futile exercises that is guaranteed to make a monkey out of you. Just when you think you understand what drives the market — it does the opposite. Palladium seems, by general consensus, to have now paid its penance for bad behaviour in 2001 when it rallied to US$1,200 per oz. and is now back in play. The market was supported on the downside by some clever option play and is now migrating higher in the company of other strongly performing commodities, making up for lost time. Unfettered and looking cheap compared to platinum, palladium is gaining favour with speculators, jewellers and carmakers alike — a lethal combination. Let us hope that palladium does not find itself back in the doghouse again this year. Notwithstanding a 40% gain in 2005, it is still looking like the bookie’s choice for 2006 and we expect palladium to see the best returns of the group.

— The author is the director of the U.K.-based website TheBullionDesk.com.

2006 Predictions — Prices Per Oz.

GoldSilverPlatinumPalladium

Q1	US$555	US$8.95	US$1,010	US$285
Q2	US$575	US$9.56	US$1,030	US$315
Q3	US$640	US$10.50	US$1,105	US$440
Q4	US$685	US$12.45	US$1,220	US$460
2006 High	US$760	US$12.50	US$1,250	US$480
2006 Low	US$520.75	US$8.83	US$982	US$253
2006 Average	US$618	US$9.77	US$1,085	US$355
2007 Average	US$730	US$11.25	US$1,175	US$540