At around this time every year, the London Bullion Market Association (LBMA) publishes the results of its annual precious metals price prediction competition in which a number of professional ‘experts’ are polled on what they anticipate happening to precious metals prices in the year ahead. The winner is the ‘expert’ who comes closest to forecasting (guessing) the average price for each of the primary traded precious metals over the year ahead.
These ‘experts’, who are primarily analysts from the financial sector, are polled at the end of the prior year, and tend to come up with some pretty wide variations in their predictions. Readers may wish to record their own guesstimates to see how they perform in comparison with the LBMA panel. (A full listing of this year’s entries may be viewed here, a publication which also lists all the individuals polled and their reasoning behind their individual predictions for each of the precious metals.)
It should be realized, though, that these predictions were all made in late December, although only published this month, and all the precious metals have seen some sharp price changes since then, which might have led to adjustments in some of the forecasts had these price corrections happened a few weeks earlier. In particular we have seen the gold price drift downwards, while silver had been boosted by the Reddit-inspired short squeeze, elements of which are still with us. Platinum has been the strongest performer year to date and has even already overtaken some of the LBMA forecasters’ predicted high levels for the full year.
To give an idea of the fairly wide range in predictions, the entrants varied in their average gold price forecasts from $1,650 to $2,300, silver from $19 to $47, platinum from $912 to $1,438 and palladium from $2,000 to $2,656. There were 32 participants in the gold price prediction section, 31 for silver, and 28 each for platinum and palladium. These forecasting ‘experts’ included many of the best known names in the precious metals analysis field which serves to highlight the wide discrepancies in expectations among those who should be the best informed. It is notable, however, that none of the predictions are suggesting anywhere near gold price rises to $5,000 or $10,000 an ounce as some of the highly self-publicized supposed precious metals specialist forecasters have been suggesting – some for several years now.
It should be realized, though, that these LBMA highlighted forecasts are for average price predictions for the full year which would suggest higher highs and lower lows at various stages throughout the year. The ‘experts’ predictions for the high and low points for each major precious metal, though, are also detailed in the full report.
In terms of the high bullion price points likely to be reached during the year, the discrepancies were also quite substantial, coming out at gold between $1,840 and $2,680, silver from $26.50 (already exceeded) and $55, platinum from $1,100 (also already exceeded) to $1,827 and palladium (a much tighter range) from $2,500 to $3,000 (several chose this latter level as their high point). The average of the average price predictions and the average of the highs predicted are detailed in the table below as are the current metal prices at the time of writing and last year’s average prices.
Table 1: Predictions for precious metals prices 2021.
LBMA EXPERTS’ 2021 PRICE AVERAGES
LBMA EXPERTS’ 2021
All figures rounded to nearest dollar except silver. *Note: Current prices close of week on February 19th, 2021.
If we take the LBMA ‘experts’ average price predictions for 2021 noted in the table above they expect precious metals to rise between around 11% for gold and palladium to 28% for platinum and around 39% for silver as far as the full calendar year is concerned. So far this year, gold has very definitely underperformed expectations, while platinum has done rather better than might have been expected as has silver.
This latter has served to highlight a shortage of silver bullion – probably temporary – which has driven the price higher than it might otherwise have reached, while the platinum price reflects some worries about supply issues in the face of relatively strong demand fundamentals. Palladium remains hugely dependent on the state of the global light vehicle market which, in turn, is itself largely related to the strength, or otherwise, of any economic recovery, and the impact of rising, or lack of, sales of non-polluting electric vehicles.
Overall precious metals prices throughout the year are likely to be colored by the performance of the equities markets. A number of highly successful investment leaders foresee an equities crash ahead and the writer would concur with that premise. But the timing and the depth of such a crash are seldom detailed and far less certain. Suffice it to say that perhaps the overall effect of the pandemic on the US economy, which has been heavily supported by Fed and Government largesse, has perhaps not been as severe as many were predicting when the pandemic first struck, due to some high profile sectors actually benefiting quite substantially. This means that the equities crash, if and when it comes, may not be as deep as previously anticipated by some commentators.
But be warned. An equities crash, if it occurs, could likely bring precious metals prices down with it as big investors struggle for liquidity. This happened in the 2008 crash, when gold recovered quite rapidly, but silver and the platinum group metals (pgms) fell far more substantially and remained weak for some time longer. History tends to repeat itself, particularly in the financial markets, and that scenario could well happen again, the severity of which would be likely dependent on how far, and how fast, equity prices decline.
Most precious metals commentaries tend to focus on gold, but while gold’s price progress over the past few years has been relatively slow and steady – as is its wont – its more industrial related siblings, perhaps with the exception so far of platinum, have been rather more volatile. This has also meant there have been bigger price gains for these overall, but interspersed also with some major dips.
In this analysis we’ll look at silver – sometimes known by traders as the devil’s metal because of its occasional vicious price swings, both up and down - which can make it particularly risky. Although its principal usage nowadays is very much in the industrial sector, and rising – mainly in photovoltaic, electronic and medical applications, coupled with continuing demand in the jewelry sector, it is also the precious metal that is most heavily influenced by swings in the gold price because of its historic function alongside gold as a principal monetary metal.
Even though this usage has pretty much fallen away it remains the precious metal most directly affected by price movements in association with those of its yellow sibling. Indeed in general its price tends to follow gold’s path, but in a more exaggerated manner. When gold moves up in price silver tends to do so too, but with a likelihood of greater percentage gains. Conversely if the gold price dips, then silver tends to fall back faster in percentage terms.
But to add to its potential volatility, silver has some almost fanatical support. This saw it surge to close to $50 an ounce as recently as 2011 in the last big silver squeeze, before the apparent bubble burst and it was brought back down to around $12 an ounce as recently as March last year. It is currently trading at over $26 an ounce after a short lived surge to $30 in the aftermath of the GameStop equities run right at the beginning of the current month – thus further demonstrating its volatility in comparison with the other precious metals.
Silver has its strong proponents and equally strong detractors, particularly as there seems to be a huge amount of disagreement over its basic supply/demand fundamentals. This is largely because there is massive controversy as to how the enormous amount of above-ground silver owned by a wide variety of people, which could conceivably be brought into play should there be a huge spike in price, should be treated.
This overhang, which largely takes the form of silver cutlery, silver artifacts, and jewelry, could be melted down as scrap supply and provides something of a potential cap on the price as far as some more bearish analyses are concerned. However new industrial demand is on the up and its rise in usage does not seem likely to slow down year-on-year giving the continuing growth in the industrial sectors which currently consume it and this currently seems to be the prime silver price driver, along with a seeming shortage of availability of silver bullion in coin and bar form.
Time was when silver’s big industrial usage was in photography, which is still an important sector for it, but perhaps minuscule in comparison with its heyday given that it has largely been replaced in day-to-day photography with digital imagery requiring no silver at all.
But overall new silver usage seems to be centered in major potential growth sectors of the global economy and in terms of consumption in comparison with new mined production the metal appears to be in something of a supply deficit, although given the big inventory overhang this won’t necessarily have quite such a big impact on price as it might for other commodities.
However, it would probably take a very big rise in the silver price to unleash any serious move towards the melting down of privately held silver in the form in which it is held, sufficient to seriously impact the current supply/demand equation.
For the silver purchaser, it should be noted that the metal has more than doubled in price since its March 2020 low point. It appears to be in a technical supply squeeze at the moment which is perhaps why its price seems more resilient than most of the other precious metals – it is price positive so far this year at the time of writing. In part this will be because of the massive rise in the big silver-backed ETFs which has left them undoubtedly short of the amounts of silver bullion necessary to meet their commitments. This may take time to correct and will thus help maintain positive price pressure for the physical metal in the short term at least.
Thus, in some commentators’ eyes, silver almost certainly remains on track to exceed $30 an ounce in the current year. It may also over time prove to be responsible for dragging gold up with it – the tail wagging the dog – so we do view precious metals in a positive light for the year ahead.
Silver, given its potentially positive environmental benefits in its usage in the solar panel sector, will also be helped by a more positive attitude towards climate change alleviation by the new Biden administration. Demand will be aided too by the switch to 5G updates in the cell phone sector.
Cell phones all use silver in their electronics, albeit in tiny amounts, but the huge unit volumes involved makes this a significant use in total. But buyer beware! Silver has a history of disappointing holders, but this time may be different but don’t necessarily count on it given its ‘devil’s metal’ reputation.
by Lawrence Williams
Lawrence (Lawrie) Williams is a highly regarded London-based writer and commentator on financial and political subjects, specializing in precious metals news and commentary. He graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London. He has contributed articles on precious metals to the Financial Times, Sharps Pixley, US Gold Bureau and Seeking Alpha among others.