APL WikiAttachment 'forecasts2008.xml'
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2 <review year="2008">
3 <analyst>
4 <forename>Adrien</forename>
5 <familyname>Biondi</familyname>
6 <company>Commerzbank International SA</company>
7
8 <pic>AB</pic>
9 <forecast metal="gold">
10 <lo>$760</lo>
11 <av>$830</av>
12 <hi>$900</hi>
13 </forecast>
14 <forecast metal="silver">
15 <lo>$14.50</lo>
16 <av>$15.25</av>
17 <hi>$17.00</hi>
18 </forecast>
19 <forecast metal="platinum">
20 <lo>$1,350</lo>
21 <av>$1,454</av>
22 <hi>$1,590</hi>
23 </forecast>
24 <forecast metal="palladium">
25 <lo>$335</lo>
26 <av>$362</av>
27 <hi>$415</hi>
28 </forecast>
29
30 <commentary metal="all">
31 Last year was a very good one for bullion and the whole industry has
32 profited from the move. Newcomers to the precious metals markets and the
33 general public assume that this bull run will be an ongoing process,
34 especially with the latest subprime crisis and the highs in oil, although
35 we tend to have a more cautious approach. Of course the crisis is mainly
36 limited to OECD countries, and the booms in China and India haven't shown
37 any signs of weakening. The shift in consumption away from the traditional
38 North American and European economies, which had been responsible for the
39 lion's share of global consumption, to the new economies is also very
40 bullish for precious metals. The constant demand from China and India for
41 natural resources has added momentum to the precious metals market.We fear
42 that a move lower during 2008 may stop this euphoria for a while, but a
43 correction is healthy for any bull market: 2008 will be a consolidation
44 period. <br/><br/>There is a potentially difficult year ahead for PGMs,
45 with high prices sapping demand within the jewellery sector along with
46 other bearish factors in the West such as diminishing car demand, although
47 this may be partially offset by expansion in the Far East. Adding to this,
48 some uncertainty over global supply levels for the coming year makes
49 choosing the correct averages very challenging. But with recent record
50 highs, again looking for some correction in 2008 would put more pressure
51 on platinum than palladium. The larger amounts of platinum held in hedge
52 funds and commodity-linked index products weigh on the more expensive
53 sibling.
54 </commentary>
55 </analyst>
56
57 <analyst>
58 <forename>Stephen</forename>
59 <familyname>Briggs</familyname>
60 <company>SGCIB</company>
61
62 <forecast metal="gold">
63 <lo>$760</lo>
64 <av>$830</av>
65 <hi>$900</hi>
66 </forecast>
67 <forecast metal="silver">
68 <lo>$11.25</lo>
69 <av>$13.75</av>
70 <hi>$17.00</hi>
71 </forecast>
72 <forecast metal="platinum">
73 <lo>$1,275</lo>
74 <av>$1,450</av>
75 <hi>$1,650</hi>
76 </forecast>
77 <forecast metal="palladium">
78 <lo>$300</lo>
79 <av>$350</av>
80 <hi>$425</hi>
81 </forecast>
82
83 <commentary metal="gold">
84 We approach this year's forecasting survey with even more trepidation than
85 usual. Our bearishness last year was based mainly on the house view that
86 the US dollar bear market would come to an end. Both were misplaced, but
87 until very recently the house view still was that the US dollar would
88 appreciate markedly against the euro in particular over the course of
89 2008, and even now some recovery is forecast in the second half. This is
90 not the consensus view and it is very far from that within the gold
91 market. Yet there may be other reasons too to take a bearish stance.
92 Although gold's internal fundamentals may remain broadly positive, they
93 are much less supportive in the recent price environment, and it is only a
94 matter of time before one factor, producer de hedging, loses its force.
95 This leaves gold overly dependent on investors.
96 </commentary>
97 <commentary metal="silver">
98 If gold does finally turn down, silver will, we believe, be particularly
99 exposed. Its fundamentals are less solid, with, notably, photographic
100 demand still in rapid decline and mine production showing clear signs of
101 picking up, and its bull market has been even more dependent on investment
102 in general and ETF demand in particular. Silver's legendary volatility
103 suggests that prices could at some point fall very heavily indeed.
104 </commentary>
105 <commentary metal="platinum">
106 In contrast, we share the strong consensus view that platinum has robust
107 fundamentals, perhaps the strongest in the sector, especially after the
108 big production losses of 2007 that tipped the market back into deficit.
109 Even if the South African industry manages to get back on track this year,
110 the market will remain tight, and after massive price-driven destruction
111 there is much pent-up jewellery demand. Platinum appears to us fairly
112 fully priced and it will not be immune to any weakening of gold, but the
113 correction we expect should be relatively contained.
114 </commentary>
115 <commentary metal="palladium">
116 On the face of it, palladium's prospects look more akin to those of
117 silver. Inventories are high and supply has been more resilient recently
118 than in the case of platinum. However, demand prospects are good, the
119 price is, or at least is perceived as low compared with the other precious
120 metals, investors appear happy to absorb Russian stockpile sales, and
121 these may at some point dry up. Palladium could even make some independent
122 progress, although it too cannot be impervious to any softness elsewhere.
123 </commentary>
124 </analyst>
125
126 <analyst>
127 <forename>Tom</forename>
128 <familyname>Butler</familyname>
129 <company>Virtual Metals</company>
130 <forecast metal="silver">
131 <lo>$14.00</lo>
132 <av>$16.20</av>
133 <hi>$18.50</hi>
134 </forecast>
135 <commentary metal="silver">
136 In 2007 the average price of silver rose by 16%, much less than the 58%
137 increase seen in 2006, but nevertheless a relatively positive performance.
138 Compared to the behaviour of the other precious metals, however, with both
139 gold and platinum achieving new all-time record price levels, silver has
140 been somewhat neglected. Fundamentally the outlook for silver remains one
141 of surplus, with new industrial demand strong, but consumption in
142 photography and jewellery is expected to decline. So long as the gold
143 price continues to strengthen and the dollar remains under pressure, then
144 silver can be expected to benefit as well. The real key to its price
145 performance in the year ahead will be investment, mainly through ETFs. If
146 enough investors can be persuaded that silver is cheap compared to other
147 precious metals, then it could assume an inflationary hedge role and press
148 higher once more.
149 </commentary>
150 </analyst>
151
152 <analyst>
153 <forename>Jeffrey</forename>
154 <familyname>Christian</familyname>
155 <company>CPM Group</company>
156 <forecast metal="gold">
157 <lo>$770 </lo>
158 <av>$850</av>
159 <hi>$1,060</hi>
160 </forecast>
161 <forecast metal="silver">
162 <lo>$12.25</lo>
163 <av>$16.50</av>
164 <hi>$21.00</hi>
165 </forecast>
166 <forecast metal="platinum">
167 <lo>$1,225</lo>
168 <av>$1,415 </av>
169 <hi>$1,700</hi>
170 </forecast>
171 <forecast metal="palladium">
172 <lo>$340</lo>
173 <av>$368</av>
174 <hi>$420</hi>
175 </forecast>
176 <commentary metal="gold">
177 Political, economic, and financial market concerns will cause investors
178 to continue buying historically high volumes of physical gold. In
179 December 2006 we said 2007 would be a year of great volatility across
180 markets. It was. We expect 2008 to see even greater volatility, in
181 currency markets, equity markets, and precious metals prices. Mine
182 production will rise, as will scrap recovery. Central banks will
183 continue to sell gold, but the key factor directing gold prices will be
184 investment demand, as it always is.
185 </commentary>
186 <commentary metal="silver">
187 Silver prices will continue to rise, pushed higher by the same wave of
188 investor anxiety that is driving gold, and will be even more extreme
189 than those of gold. Prices could spike sharply lower, but the bias will
190 remain toward higher prices. Industrial demand, especially in electronic
191 applications, will apply additional upward pressure. The physical silver
192 market is far less liquid than that of gold, which should lead to more
193 volatile price swings. People speak of the fact that silver 'lagged'
194 gold by 'only' rising $15.3% from end-2006 to end-2007, while gold rose
195 31.3%. They overlook the fact that while gold prices rose 23% in 2006,
196 silver rose 45.5%. Gold was playing catch up with silver last year.
197 </commentary>
198 <commentary metal="platinum">
199 Platinum prices may continue to trade around record levels during the
200 first half of the year, but could sell off significantly during the
201 second half. If South African production continues to be disrupted,
202 platinum will remain high. Barring continued disruptions, South African
203 output could rise in a year that sees slower growth in industrial use.
204 Investors might sell in the second half of 2008, especially if they grow
205 more fearful of either a 2009 recession, a shift away from platinum in
206 auto catalysts, or both.
207 </commentary>
208 <commentary metal="palladium">
209 Palladium will participate more fully in the investor buying spree
210 expected to continue in precious metals this year.
211 </commentary>
212 </analyst>
213
214 <analyst>
215 <forename>Suki</forename>
216 <familyname>Cooper</familyname>
217 <company>Barclays Capital</company>
218 <forecast metal="gold">
219 <lo>$690 </lo>
220 <av>$840</av>
221 <hi>$1,000</hi>
222 </forecast>
223 <forecast metal="silver">
224 <lo>$12.70</lo>
225 <av>$14.90</av>
226 <hi>$17.00</hi>
227 </forecast>
228 <forecast metal="platinum">
229 <lo>$1,350 </lo>
230 <av>$1,620 </av>
231 <hi>$1,750</hi>
232 </forecast>
233 <forecast metal="palladium">
234 <lo>$300</lo>
235 <av>$358</av>
236 <hi>$420</hi>
237 </forecast>
238 <commentary metal="gold">
239 In our view, gold prices are set to post positive gains for the seventh
240 consecutive year on an annual average basis. Following a significant swing
241 into deficit last year, the market fundamentals remain tightly balanced
242 and external drivers remain positive. Even with the dollar stabilising at
243 its recent lower levels, investment demand remains strong. Gold prices
244 were buoyed by investor interest and this is likely to remain the key
245 price determinant this year. External factors such as higher inflation
246 expectations, broader economic concerns, geopolitical tensions and Fed
247 rate easing are likely to drive prices higher. On a fundamental basis mine
248 supply remains constrained and physical and investment demand should
249 emerge upon price dips providing a price floor.
250 </commentary>
251 <commentary metal="silver">
252 Silver prices have benefited from the positive price evolution of gold
253 rather than its own supply/demand balance, which appear unfavourable. We
254 forecast the market will move into surplus this year given the strong
255 growth in mine supplies exacerbating a period of weak demand growth.
256 Speculative interest remains key and despite its own fundamental balance
257 we believe prices will continue to track gold this year, benefiting from
258 its price appreciation.
259 </commentary>
260 <commentary metal="platinum">
261 Platinum was the strongest performer last year and in our view it will
262 outperform again this year. Inventories remain at historically low levels
263 and the impact of the mine supply disruptions last year is likely to
264 extend into this year, especially as South Africa continues its audit of
265 mines following the spate of fatal accidents. After its sharp swing back
266 into negative territory last year, the platinum supply-demand balance is
267 staged to post another deficit, albeit smaller than the previous year.
268 Limited growth in supplies is likely to be more than offset by robust
269 demand. The demand growth trend is expected to stay intact for the 16th
270 consecutive year, buoyed by growth in the auto-catalyst sector and boosted
271 by the tightening emissions legislations and the limited substitution of
272 palladium in diesel vehicles. After a slow start, demand for the ETFs has
273 risen substantially, which further tightens the platinum supply-demand
274 balance.
275 </commentary>
276 <commentary metal="palladium">
277 Palladium prices posted the smallest gains within the complex last year as
278 its weak fundamentals capped upside potential. Price appreciation was
279 buoyed by the rest of the complex performing well and strong speculative
280 interest. These factors are again likely to be key as palladium's
281 supply-demand balance is set to post its sixth year of a surplus greater
282 than 1Moz. Physically-backed ETFs were well received, but a key support
283 for prices will be removed should palladium fall out of favour with
284 investors. Growth in autocatalyst demand remains healthy but is likely to
285 be outpaced by supply from both scrap and mine output and, coupled with
286 large above-ground inventories, any significant price appreciation is
287 likely to be limited.
288 </commentary>
289 </analyst>
290
291 <analyst>
292 <forename>David</forename>
293 <familyname>Davis</familyname>
294 <company>Credit Suisse Standard Securities</company>
295 <forecast metal="gold">
296 <lo>$760 </lo>
297 <av>$950</av>
298 <hi>$1,110</hi>
299 </forecast>
300 <forecast metal="silver">
301 <lo>$14.00</lo>
302 <av>$17.30</av>
303 <hi>$25.00</hi>
304 </forecast>
305 <forecast metal="platinum">
306 <lo>$1,445 </lo>
307 <av>$1,700 </av>
308 <hi>$2,100</hi>
309 </forecast>
310 <forecast metal="palladium">
311 <lo>$320</lo>
312 <av>$381</av>
313 <hi>$420</hi>
314 </forecast>
315 <commentary metal="gold">
316 Upward pressure on the gold price is likely being driven by the US
317 economic environment, rising oil and commodity prices and a change in the
318 dynamics surrounding supply and demand. These combined factors have
319 resulted in a weakening of the US dollar, which in turn has driven gold
320 higher.
321 <br/><br/>
322 Turning to supply-and-demand fundamentals, over the longer term, our
323 studies indicate that global gold production (primary supply) will begin
324 to decline as the diminishing number of new reserves fails to compensate
325 for dying mines. The decline in production will likely be accelerated
326 should the gold mining industry continue to incur significant year-on-year
327 inflation rates which are not offset by similar or significantly higher
328 gold price increases.
329 <br/><br/>
330 We believe central bank sales will likely wither going forward, and the
331 banks could become net buyers. Producer de-hedging has accelerated in
332 recent years. In particular, we expect that AngloGold Ashanti could enter
333 the de-hedging market, contributing an additional 3 to 3.5 million ounces
334 during 2008. We also believe investment demand (ETFs) will continue to be
335 robust during 2008. Volatile and higher gold prices coupled with the
336 expected economic slowdown in the US and Europe could, however, stem
337 jewellery demand in these areas, but demand from China and India will
338 likely remain positive.
339 <br/><br/>
340 Geopolitical tensions, which generally lead to higher gold prices and
341 price volatility, have heightened with the political turmoil in Pakistan
342 after the assassination of Benazir Bhutto and the cross-border operations
343 of Turkish troops to hunt down Kurdish separatists in Iraq. Tensions are
344 also ever-present between the US and Iran and the US and North Korea.
345 <br/><br/>
346 Given this longer-term scenario, we believe the supply-demand imbalance
347 going forward will begin to accelerate at an ever-increasing pace into a
348 net deficit, which in turn will likely put significant upward pressure on
349 the gold price.
350 </commentary>
351 <commentary metal="silver">
352 Silver prices only rose 14% year-on-year (2006-2007), having put gains of
353 25%, 38% and 42% over the previous three years. We believe silver prices
354 will likely play 'catch up' when compared to the year-on-year increases of
355 the previous years, but also and more importantly, silver prices will
356 likely receive impetus from the upward trend in platinum and gold prices
357 and the investment (ETF) market. In the long term gold and silver prices
358 have been closely correlated. The fundamentals of the silver supply and
359 demand dynamics are unlikely to have a major effect on driving the price.
360 Silver has the potential to break through $20 by the end of the year.
361 </commentary>
362 <commentary metal="platinum">
363 Platinum will likely continue its upward trend on the back of the current
364 economic environment just described for gold. In addition, GFMS and
365 Johnson Matthey believe platinum supply will be moving into a deficit
366 position in 2007, mainly as a result of a shortfall in supply from South
367 Africa, which produces some 78% of global platinum supply. Anglo Platinum
368 and Lonmin revised their 2007 and 2008 projections downwards during 2006.
369 South African platinum production was also affected by a series of
370 safety-related shutdowns, industrial action and project delays. We believe
371 the deficit in platinum supply will be prolonged by at least three to four
372 years, which in turn will likely put further upward pressure on the price
373 and, thereafter, continued tight supply and demand dynamics will likely
374 follow.
375 <br/><br/>
376 Increased vehicle production from China and India, together with the
377 increased likelihood of an ever-increasing switch to diesel powered
378 vehicles in the US, will likely keep prices buoyant going forward.
379 However, GFMS have observed that the recent record high prices have caused
380 a renewed drive to substitute platinum with palladium. GFMS also report
381 manufacturers incorporating palladium in diesel autocatalyst systems.
382 Thrifting and substitution of platinum have been common practices in the
383 past, but they were, in the main, offset by tightening environmental
384 legislation, which generally increases the demand of platinum used per
385 vehicle. Tightened environmental legislation is to be enforced at the end
386 of 2008 in Europe and in 2010 the US.
387 </commentary>
388 <commentary metal="palladium">
389 Both Johnson Matthey and GFMS indicate that the demand for palladium is
390 likely to increase by around 2% to 3% in 2007. Notwithstanding a predicted
391 surplus of palladium in 2007, there are abundant stocks of palladium in
392 Russia and Switzerland. The significant supply-demand surplus in the
393 palladium market will likely mean a limited upside price potential for
394 2008. The palladium price rose by 12% year on year (2006-2007). However,
395 we believe the metal could find support with upside potential should
396 autocatalyst manufacturers move swiftly into the substitution of platinum
397 by palladium. Furthermore, palladium prices will likely follow the upward
398 trends of gold and platinum.
399 </commentary>
400 </analyst>
401
402 <analyst>
403 <forename>Walter</forename>
404 <familyname>De Wet</familyname>
405 <company>Standard Bank</company>
406 <forecast metal="gold">
407 <lo>$700 </lo>
408 <av>$835</av>
409 <hi>$980</hi>
410 </forecast>
411 <commentary metal="gold">
412 The current global economic environment remains bullish for gold, but
413 should ensure that volatile conditions remain.
414 <br/><br/>
415 We see the US economy coming under increased pressure during the first
416 half of 2008. As a result credit spreads should widen further. Combined
417 with sovereign and political risk on the rise in certain countries, we
418 should see support for gold in 2008H1.
419 <br/><br/>
420 The US dollar's woes are linked to US interest rates declining. The Fed is
421 set to continue easing rates, while the ECB seems unperturbed by slowing
422 economic growth, and is unlikely to cut rates for now.
423 <br/><br/>
424 Although jewellery demand in major centres showed a decline towards
425 end-2007, this must be a continuous trend before any real price impact
426 will be seen.
427 <br/><br/>
428 The new futures contract that started trading on the Shanghai Futures
429 exchange is bound to renew interest in gold as an investment in China. We
430 do believe this impact could be large.
431 <br/><br/>
432 Continued portfolio diversification via commodity investment vehicles
433 should provide support to the metal on the downside.
434 </commentary>
435 </analyst>
436
437 <analyst>
438 <forename>Peter</forename>
439 <familyname>Fertig</familyname>
440 <company>Dresdner Bank</company>
441 <forecast metal="gold">
442 <lo>$800</lo>
443 <av>$920</av>
444 <hi>$1,000</hi>
445 </forecast>
446 <forecast metal="silver">
447 <lo>$14.50</lo>
448 <av>$16.00</av>
449 <hi>$17.00</hi>
450 </forecast>
451 <forecast metal="platinum">
452 <lo>$1,450</lo>
453 <av>$1,600</av>
454 <hi>$1,700</hi>
455 </forecast>
456 <forecast metal="palladium">
457 <lo>$350</lo>
458 <av>$390</av>
459 <hi>$425</hi>
460 </forecast>
461 <commentary metal="all">
462 There are three factors that play a dominating role as the driving force of
463 precious metals prices. The price of crude oil serves as a good proxy for
464 inflation fears. The next major fundamental factor is the US dollar exchange
465 rate, as metals are priced in this currency. Here, either the US dollar
466 index or the EUR/USD exchange rate has the closest correlation. And finally,
467 precious metals are not necessarily a safe haven. If investors risk appetite
468 drops due to crisis in financial markets, precious metals are often sold to
469 cover losses. The US stock market provides a good indication of risk
470 aversion.
471 <br/><br/>
472 Crude oil started the year with a bang as it traded at $100/bbl for the
473 first time. However, much of the price increase is based on speculation
474 rather than the underlying supply and demand balance. In 2008, demand is
475 expected to expand less than the consensus view due to a slowdown of G7
476 economies. In China as well, GDP growth is likely to be lower than last
477 year. By the end of this year, Brent is predicted to be trading at $70/bbl.
478 <br/><br/>
479 Demand from financial investors is far more important than demand from the
480 jewellery industry for the development of precious metal prices. It is often
481 said that investors buy gold as a hedge against rising inflation. However,
482 empirical experience does not bear this out. US inflation has no significant
483 effect on the gold price. Demand from financial investors is largely
484 determined by the US dollar's performance in the currency markets.
485 <br/><br/>
486 Since the subprime mortgage crisis broke out, what has driven the dollar's
487 weakness is the expectation that the Fed will cut interest rates so that the
488 dollar becomes less attractive relative to other currencies. Following the
489 recent weak US economic data and the rise in the unemployment rate to 5%,
490 our US economists anticipate that the Fed will start lowering interest
491 rates more aggressively, cutting the Fed funds rate during the first half of
492 the year in four steps of 25bp each to 3.25%. This means that the Fed Funds
493 target rate is well below the ECB refinancing rate.
494 <br/><br/>
495 The US dollar is expected to weaken against the euro to 1.53 in Q2, but in
496 H2 the tables will be turned. US GDP growth should pick up again as early as
497 Q2 and further accelerate after the summer, so that the market will no
498 longer expect further interest rate cuts. In the Eurozone on the other hand
499 weaker growth is expected, so that the ECB should reduce the refinancing
500 rate by 25bp. The US dollar is likely to appreciate against the euro to
501 1.43. Precious metals will then face a headwind from falling oil prices and
502 a firmer dollar. They will not be able to withstand this pressure and prices
503 should ease significantly. Silver is likely to perform better than gold in
504 H1 but to perform worse in H2. Due to production problems in South Africa
505 and the demand pattern of the automobile industry, platinum is expected to
506 hold better than palladium.
507 </commentary>
508 </analyst>
509 <analyst>
510 <forename>Rene</forename>
511 <familyname>Hochreiter</familyname>
512 <company>James Allen</company>
513 <forecast metal="gold">
514 <lo>$840</lo>
515 <av>$1,050</av>
516 <hi>$1,150</hi>
517 </forecast>
518 <forecast metal="platinum">
519 <lo>$1,529</lo>
520 <av>$1,750</av>
521 <hi>$2,000</hi>
522 </forecast>
523 <forecast metal="palladium">
524 <lo>$350</lo>
525 <av>$450</av>
526 <hi>$600</hi>
527 </forecast>
528 <commentary metal="gold">
529 A slowdown in the creation of new mines, new production and exploration
530 projects should support the price, as well as continued US dollar weakness.
531 </commentary>
532 <commentary metal="platinum">Continued poor production performances from
533 South Africa's mines, SA government interference with production for safety
534 reasons and inability of new exploration projects to be brought into
535 production on time, together with legislated-driven demand will keep the
536 price firm for some time to come.
537 </commentary>
538 <commentary metal="palladium">
539 Declining levels of palladium stocks will likely drive the price higher in
540 2008.
541 </commentary>
542 </analyst>
543 <analyst>
544 <forename>Michael</forename>
545 <familyname>Jansen</familyname>
546 <company>JPMorgan Chase Bank</company>
547 <forecast metal="gold">
548 <lo>$775</lo>
549 <av>$814</av>
550 <hi>$975</hi>
551 </forecast>
552 <forecast metal="silver">
553 <lo>$13.50</lo>
554 <av>$14.00</av>
555 <hi>$16.50</hi>
556 </forecast>
557 <forecast metal="platinum">
558 <lo>$1,450</lo>
559 <av>$1,475</av>
560 <hi>$1,750</hi>
561 </forecast>
562 <forecast metal="palladium">
563 <lo>$350</lo>
564 <av>$416</av>
565 <hi>$440</hi>
566 </forecast>
567 <commentary metal="gold">
568 As we prepare our 2008 commentary for the LBMA annual survey, gold is
569 trading around $875, well above the last official forecast we prepared in
570 October 07 when we had expected gold to average $814 for 2008 (at the time
571 spot gold was around $725). Gold is higher in non-USD terms as well,
572 reflecting gold's own bullish intrinsic fundamentals (falling mine supply,
573 rising cash costs, difficulties in ore body repletion), which continue to be
574 as important as macro thematic drivers such as strong investor demand
575 reflecting gold's store-of-value proposition as a hedge against inflation
576 and USD weakness. With the EUR/USD projected to trade to 1.5500 over 2008,
577 further upside towards $950-$975 is likely. Long liquidation (futures and/or
578 physical) could see the range low tested, but dips are buying opportunities.
579 Indeed, the risks around inflation pressures in 2008H2 are so skewed to the
580 topside that a $975 range top could be seen as too conservative.
581 </commentary>
582 <commentary metal="silver">
583 Silver has less price bullish supply-side fundamentals relative to gold and
584 less robust thematic appeal as well. Indeed, silver can be viewed as a very
585 valuable base metal as opposed to a cheap precious metal given the degree to
586 which it is produced as a by-product of base metal mining, not to mention
587 that it is a less efficient store of value. One of the main reasons many in
588 the market have favoured silver's outperformance in recent times is its
589 lower level of liquidity relative to gold, but so far the OTC market has
590 coped easily with the build in ETF inventory and we see no reason to expect
591 that the physical market will tighten enough to engineer an outperformance
592 in the year ahead. More mine supply (both primary and by-product) will
593 represent a strong cap around $16 and higher.
594 </commentary>
595 <commentary metal="platinum">
596 Regulatory-driven physical demand, a lack of ready substitution in certain
597 applications (for instance diesel autocatalysts), a huge reliance on
598 infrastructure-stressed South Africa for primary production and rising
599 investor demand are stressing the residual volume of above-ground platinum
600 stock and increasingly raising the risk of a significant increase in
601 platinum prices over 2008. Jewellery demand also appears to be less price
602 elastic at current levels (having contracted down to around just 1600-1800mt
603 from around 2800mt 7-8 years ago) and is adding to a positive S&D framework
604 that appears to present limited opportunity for lower prices in 2008. Given
605 liquidity constraints it is not difficult at all to see prices above $1,700
606 in 2008, even if only briefly.
607 </commentary>
608 <commentary metal="palladium">
609 Palladium is to platinum as silver is to gold: too much supply and not
610 enough demand to warrant an exceptionally bullish price outlook. However
611 there is no doubt that the excess of above-ground inventory is dwindling
612 and that palladium has significant scope to continue to take market share
613 off platinum in diesel applications, already having significantly
614 displaced platinum in the gasoline sector. The market though is wary about
615 trading the "ifs" in palladium, as recent rallies have struggled for
616 momentum and lagged the more bullish (from an S&D perspective)
617 platinum market. We are wary though that any slowdown in destocking from
618 Russian producers could easily see palladium catch up, especially if ETF
619 demand continues to build, albeit off a low base.
620 </commentary>
621 </analyst>
622
623 <analyst>
624 <forename>Tom</forename>
625 <familyname>Kendall</familyname>
626 <company>Mitsubishi Corporation</company>
627 <forecast metal="gold">
628 <lo>$780 </lo>
629 <av>$920</av>
630 <hi>$1,025</hi>
631 </forecast>
632 <forecast metal="silver">
633 <lo>$13.25</lo>
634 <av>$15.85</av>
635 <hi>$17.75</hi>
636 </forecast>
637 <forecast metal="platinum">
638 <lo>$1,380</lo>
639 <av>$1,575</av>
640 <hi>$1,760</hi>
641 </forecast>
642 <forecast metal="palladium">
643 <lo>$340</lo>
644 <av>$370</av>
645 <hi>$445</hi>
646 </forecast>
647 <commentary metal="gold">
648 Most key drivers for the gold price will remain bullish in 2008. Interest
649 rate differentials between the US and Europe will turn negative, putting
650 further pressure on the dollar. Inflation is rising, credit contagion is
651 spreading to bond insurers, and geopolitical instability is rife. In
652 addition, commodities remain very much in vogue with almost every category
653 of fund: hedge, mutual, pension, trust, sovereign wealth…as well as with
654 individual investors. The expected launch of an ETF in the Middle East will
655 further broaden investor access.
656 <br/><br/>
657 On the bearish side, the influence of producer de-hedging will diminish and
658 high and volatile prices will see bouts of weakness in jewellery demand,
659 whilst a US recession could see the oil price fall back into the $70s. We
660 also remain wary of sharp corrections in emerging market equities that could
661 be replicated in gold. Nevertheless, for now at least the multi-year bull
662 market is intact and $1,000 gold is a realistic target.
663 </commentary>
664 <commentary metal="silver">
665 Gold's schizophrenic sister will increasingly be torn between its industrial
666 and precious personalities this year, but the latter is likely to win more
667 often than not.
668 <br/><br/>
669 On the face of it, the fundamentals are less than encouraging: slowing
670 economic growth rates are likely to affect consumption in electronics,
671 demand from the photographic sector is expected to fall further, and there
672 is little to support an upturn in silverware fabrication. At the same time a
673 meaningful supply response to record prices will start to be felt. The
674 influence of the gold price, however, is likely to outweigh all of these
675 factors.
676 <br/><br/>
677 There will almost certainly be short periods when the silver price
678 out-performs relative to gold. However, over the year as a whole the white
679 metal may well lag behind, with the gold:silver ratio widening towards 60 as
680 a result.
681 </commentary>
682 <commentary metal="platinum">
683 The supply/demand fundamentals have a very direct bearing on the platinum
684 price and the fundamentals remain highly supportive.
685 <br/><br/>
686 South African producers should, on paper, be able to deliver a significant
687 boost to output this year, but the kind of problems that were seen
688 throughout 2007 - strikes, process-equipment breakdowns, shaft closures for
689 safety reasons, etc. - are again likely to prove disruptive. The situation
690 in Zimbabwe is hardly reassuring either.
691 <br/><br/>
692 On the demand front, tightening emissions limits plus vehicle sales growth
693 in Asia and central Europe should see use of platinum in autocatalysts
694 continue to rise in 2008, despite ongoing substitution in both diesel and
695 gasoline catalyst systems.
696 <br/><br/>
697 As a result, CTAs, hedge funds and the general public in Japan are expected
698 to remain very friendly towards platinum, and platinum exchange traded funds
699 are likely to suck at least another 100,000 oz of much-needed metal out of
700 the market.
701 </commentary>
702 <commentary metal="palladium">
703 Bearing in mind its not-too-distant history, it is perhaps a little
704 dangerous to forecast a year of relative stability for the palladium price,
705 but that is the most likely outcome. We see no reason for patient long-term
706 investors in the metal (of whom there are many) to abandon their support;
707 neither do we foresee any marked change in fundamentals that would lead to a
708 tightening of availability. Onwards and slowly upwards then, with just an
709 occasional and slightly nervous glance back at 2000/2001.
710 </commentary>
711 </analyst>
712
713 <analyst>
714 <forename>Philip</forename>
715 <familyname>Klapwijk</familyname>
716 <company>GFMS Ltd</company>
717 <forecast metal="gold">
718 <lo>$810 </lo>
719 <av>$866</av>
720 <hi>$1,001 </hi>
721 </forecast>
722 <forecast metal="silver">
723 <lo>$14.20</lo>
724 <av>$15.45</av>
725 <hi>$19.25</hi>
726 </forecast>
727 <forecast metal="platinum">
728 <lo>$1,455</lo>
729 <av>$1,527</av>
730 <hi>$1,770</hi>
731 </forecast>
732 <forecast metal="palladium">
733 <lo>$335</lo>
734 <av>$397</av>
735 <hi>$470</hi>
736 </forecast>
737 <commentary metal="gold">
738 The credit markets crisis has provided fresh impetus to the gold bull
739 market, with the yellow metal benefiting from the ensuing flight to quality.
740 The second order effect of the strains the crisis is placing on the
741 financial system is looser monetary policy, particularly in the United
742 States. The Fed also is being forced into making interest rate cuts because
743 the US economy is headed towards the rocks, a development in no small
744 measure related to fallout from the sub-prime debacle. Recession in the
745 United States means lower stock prices and a weaker dollar - gold's two
746 largest competitors are therefore likely to under-perform. Throw into this
747 mix a nasty rise in inflation, related high oil prices and continued
748 geopolitical uncertainty, and it is easy to see why investment demand is
749 likely to grow in 2008. A broadening of the gold investment market should
750 more than cope with the headwinds coming from what is likely to turn out to
751 be a very difficult year for fabrication demand, especially its jewellery
752 component.
753 </commentary>
754 <commentary metal="silver">
755 Silver is likely to be pushed in two opposite directions during 2008; the
756 metal will face upward pressure from investment demand but worsening
757 supply/demand fundamentals will at the same time militate for lower prices.
758 Investors are likely to have the upper hand, although strong growth in mine
759 production and a slide in fabrication, especially industrial demand due to
760 slower economic growth will act as a considerable drag. Overall, it is
761 difficult not to see silver following gold's lead higher this year. However,
762 this is likely to be accompanied by continued high price volatility and a
763 wider trading range than for its more valuable yellow cousin.
764 </commentary>
765 <commentary metal="platinum">
766 As was the case in 2007, the main issue this year for platinum is expected
767 to be South African supply and the ongoing uncertainties regarding output
768 from the country's mines. This gives an upward bias to prices, even before
769 one takes into account the metal's tight bullion stock position and
770 traditionally strong correlation with gold. Therefore, although, in the
771 absence of a major setback to South African mine production, the platinum
772 market is likely to record a surplus this year (which will grow in 2009),
773 this is unlikely to be enough to alleviate underlying market tightness and
774 thus darken materially the price outlook.
775 </commentary>
776 <commentary metal="palladium">
777 Palladium's supposed Achilles heel remains the large bullion inventories
778 that exist in Zurich and Moscow. Nevertheless, the threat that these are
779 present should not be overstated, particularly if the metal is in reasonably
780 strong hands. After all, these abundant stocks have not prevented
781 substantial price increases in the last two years. In addition, it should
782 be noted that the palladium market is likely to register a substantial
783 deficit in 2008 before any bullion stock mobilisation is taken into account.
784 This will occur due to growth in fabrication demand from autocatalysts,
785 electronics and jewellery (with in all three cases substitution playing an
786 important role) and in spite of a meaningful jump in supply from
787 autocatalyst recycling.
788 </commentary>
789 </analyst>
790 <analyst>
791 <forename>Martin</forename>
792 <familyname>Murenbeeld</familyname>
793 <company>Dundee Economics</company>
794 <forecast metal="gold">
795 <lo>$775 </lo>
796 <av>$890</av>
797 <hi>$1,015 </hi>
798 </forecast>
799 <commentary metal="gold">
800 The factors we expect to drive gold higher number eight, and other than
801 occasional shifts in importance these haven't changed in recent years. The
802 most difficult factor to forecast is (1) the geopolitical one, which is
803 partly responsible for the surge in price late 2007-early 2008. I noted last
804 year that (2) the supply outlook is benign, furthermore, whereas (3)
805 infrastructural demand developments in Asia are quite revolutionary in my
806 opinion. This is underscored by the opening of the Shanghai gold futures
807 market. I continue to be a dollar bear: (4) the dollar is seriously
808 overvalued against the Asian currencies and must decline further. If/when it
809 does, we expect to see demand in Asia (already stimulated by growing wealth)
810 increase more. Gold is still very depressed on (5) an inflation-adjusted
811 basis, so has upside room on this account. Dollar reserves in the world are
812 'excessive' and will continue to be (6) diversified. Oil-producing countries
813 are benefiting from high oil prices and some of this wealth will find its
814 way into gold. The boom in commodity demand should continue, and while I
815 don't think gold is a 'commodity' as such, it will benefit indirectly.
816 Cycles (7) in the gold price last many years, and gold is only in year
817 seven. My ace-in-the-hole is (8) monetary reflation: economic weakness would
818 hurt the gold price were it not for expected interest rate cuts and monetary
819 infusions to alleviate credit market problems. A financial crisis would be
820 dramatically positive for the gold price.
821 <br/><br/>
822 Our 2008 year-average would be higher were we not a little concerned about
823 how the market will handle a potential rise in the dollar versus the euro,
824 if it came to that. Too much Fed focus on 'inflation' and not enough on
825 'recession' would also not benefit gold.
826 </commentary>
827 </analyst>
828 <analyst>
829 <forename>Ross</forename>
830 <familyname>Norman</familyname>
831 <company>TheBullionDesk</company>
832 <forecast metal="gold">
833 <lo>$840 </lo>
834 <av>$976</av>
835 <hi>$1,250 </hi>
836 </forecast>
837 <forecast metal="silver">
838 <lo>$14.93</lo>
839 <av>$16.75</av>
840 <hi>$18.80</hi>
841 </forecast>
842 <forecast metal="platinum">
843 <lo>$1,530</lo>
844 <av>$1,665</av>
845 <hi>$1,950</hi>
846 </forecast>
847 <forecast metal="palladium">
848 <lo>$370</lo>
849 <av>$412</av>
850 <hi>$495</hi>
851 </forecast>
852 <commentary metal="gold">
853 Following the stonking 30% rise in 2007, we remain manifestly bullish for
854 gold prices and forecast that the market is set for another bumper year in
855 2008. Many of the factors that have taken us to record highs are likely to
856 remain in play, but more so: specifically, accelerating investment demand of
857 gold ETFs, safe-haven buying on ongoing concerns about the stability of the
858 economy - but perhaps most importantly, rising inflation. Geopolitical
859 tension may ease with the departure of Bush from the White House, and indeed
860 the dollar may have seen the largest part of its decline, which could
861 mitigate things. However, with mine supply remaining static, central bank
862 sales comparatively limited, and the demand side fundamentals looking
863 positive, we believe further significant gains are afoot with jewellery
864 demand providing a welcome drag on runaway prices.
865 </commentary>
866 <commentary metal="silver">
867 So often in the shadow of gold, silver has recorded impressive gains over
868 the last four years. As primarily a by-product of base metals mining, it
869 remains moderately price inelastic, and it can expect rising mine production
870 based upon increases in production of the host metals, primarily copper.
871 Silver's price gains, however, can be attributed to solid demand-side
872 investment, and that appetite looks set to continue in 2008 as the race
873 between the old world and the emerging economies to corner the world's
874 natural resources intensifies... be it a mine or simply physical metal. The
875 fly in the ointment may be the slowing global economy and, more so than in
876 gold, this could signal a more modest increase than in former years.
877 </commentary>
878 <commentary metal="platinum">
879 Platinum continues to benefit from a solid fundamental base. Inventories at
880 the start of 2008 are low, and with the market expected to sustain a deficit
881 between supply and demand over the year, prices can be expected to remain
882 high. Whether there is sufficient power in the market to sustain platinum at
883 levels much above $1,600 is open to doubt, however, especially as it is
884 experiencing increasing challenges from palladium in the important demand
885 sectors of jewellery and the automotive sector, notably in diesel, where
886 until relatively recently it has been the only PGM in use. Mine supply is
887 increasing, particularly in South Africa, but the market is not expected to
888 move into a surplus until 2009, even if economic activity slows. Although
889 there is frequent reference to the struggle being sustained by indigenous
890 North American auto producers, the global automotive sector is relatively
891 robust and will continue to underpin the market.
892 </commentary>
893 <commentary metal="palladium">
894 The comparative non-performance of palladium prices is a surprise given the
895 significant price differential to platinum. With many automakers able to
896 switch between PGMs and with metals stocks tightening (albeit slowly),
897 palladium looks ready to join the commodity bull run, if somewhat modestly.
898 We are bullish for palladium in 2008 and expect the auto sector to continue
899 to drive the market higher (pun intended) as palladium makes inroads (pun
900 intended) into platinum usage on diesel catalytic converters.
901 </commentary>
902 </analyst>
903
904 <analyst>
905 <forename>Rhona</forename>
906 <familyname>O'Connell</familyname>
907 <company>ROC Consultancy Ltd.</company>
908 <forecast metal="gold">
909 <lo>$730 </lo>
910 <av>$880</av>
911 <hi>$950 </hi>
912 </forecast>
913 <forecast metal="silver">
914 <lo>$12.50 </lo>
915 <av>$14.00</av>
916 <hi>$17.25</hi>
917 </forecast>
918 <forecast metal="platinum">
919 <lo>$1,350</lo>
920 <av>$1,575</av>
921 <hi>$1,650</hi>
922 </forecast>
923 <forecast metal="palladium">
924 <lo>$320</lo>
925 <av>$390</av>
926 <hi>$425</hi>
927 </forecast>
928 <commentary metal="gold">
929 The heady days at the start of 2008 have generated a euphoric response in
930 the wider markets, with the result that forecasts of ever-rising prices are
931 almost becoming self-fulfilling. There is a panoply of supportive factors
932 in the market, but it is important also to remember that gold not only
933 enjoys investment and speculative support, but also has an independent set
934 of 'traditional' supply-demand fundamentals of its own. High and volatile
935 prices have been undermining this balance, with physical demand filling in a
936 number of price-responsive regions, notably the Indian Sub-Continent where
937 demand has not only slowed but scrap is being returned. There is a risk
938 that once the inflow of investor funds slows - or even reverses - then a
939 price fall could be sharp.
940 <br/><br/>
941 In early 2008 gold is benefiting from renewed dollar bearishness,
942 inflationary fears in an increasing number of countries (although real
943 interest rates are by no means all negative), geopolitical tensions and
944 concerns over continued contagion form the credit market problems, plus a
945 positive view overall with respect to the commodities sector. These are
946 easily enough to propel prices through $900 and onwards towards $1,000, but
947 any such challenge will be professionally driven. For a solid physical
948 support base to develop gold needs to lose some of its speculative excess.
949 </commentary>
950 <commentary metal="silver">
951 Silver's fundamental background is less robust than that of gold and it,
952 too, has been enjoying inflated prices that have been boosted by investment
953 and speculative interest. The balance between traditional supply and
954 industrial demand is likely to be in surplus during 2008, and this
955 theoretically points to lower prices, but while gold remains buoyant, silver
956 is likely to follow suit. It is a notoriously volatile metal, which tends to
957 mean that speculators often trade it as a geared method of playing
958 gold-price movements. Photographic demand continues to fall, although this
959 is being offset by a proliferation of industrial uses; equally, however,
960 mine supply is on the increase. When gold runs out of zip, then the silver
961 market will be a very dangerous place to be.
962 </commentary>
963 <commentary metal="platinum">
964 Platinum continues to benefit from a solid fundamental base. Inventories at
965 the start of 2008 are low, and with the market expected to sustain a deficit
966 between supply and demand over the year, prices can be expected to remain
967 high. Whether there is sufficient power in the market to sustain platinum at
968 levels much above $1,600 is open to doubt, however, especially as it is
969 experiencing increasing challenges from palladium in the important demand
970 sectors of jewellery and the automotive sector, notably in diesel, where
971 until relatively recently it has been the only PGM in use. Mine supply is
972 increasing, particularly in South Africa, but the market is not expected to
973 move into a surplus until 2009, even if economic activity slows. Although
974 there is frequent reference to the struggle being sustained by indigenous
975 North American auto producers, the global automotive sector is relatively
976 robust and will continue to underpin the market.
977 </commentary>
978 <commentary metal="palladium">
979 Palladium continues to run a high inventory level, but the underlying
980 fundamentals of the market are relatively strong. There is always a question
981 mark as to whether Russia will be a supplier from its inventory, which has
982 in the past helped to keep palladium price action reasonably muted, but the
983 mood in the markets is such that a test of $400 cannot be ruled out.
984 Industrial demand remains healthy, underpinned by the automotive sector,
985 jewellery and electronics. In theory the high level of inventory should
986 suggest that palladium would underperform platinum over the year, but
987 palladium's encroachment into platinum's territory in the diesel sector
988 suggests that it will remain competitive.
989 </commentary>
990 </analyst>
991
992 <analyst>
993 <forename>Frederic</forename>
994 <familyname>Panizzutti</familyname>
995 <company>MKS Finance S.A.</company>
996 <forecast metal="gold">
997 <lo>$780 </lo>
998 <av>$872</av>
999 <hi>$1,001 </hi>
1000 </forecast>
1001 <forecast metal="silver">
1002 <lo>$12.00 </lo>
1003 <av>$16.00</av>
1004 <hi>$19.00</hi>
1005 </forecast>
1006 <forecast metal="platinum">
1007 <lo>$1,420</lo>
1008 <av>$1,563</av>
1009 <hi>$1,700</hi>
1010 </forecast>
1011 <forecast metal="palladium">
1012 <lo>$320</lo>
1013 <av>$365</av>
1014 <hi>$420</hi>
1015 </forecast>
1016 <commentary metal="gold">
1017 In 2007, gold rose over 30%. From a less predictable scenario over the last
1018 2 years, mainly due to geopolitical tensions, the market now shifted into a
1019 more rational and forecastable environment. The prevailing factors this year
1020 remain a weaker USD, the subprime crisis and further diversifications by
1021 both the official and private sectors. We expect the USD to weaken further
1022 on the back of slower growth and broader disinvestment out of the USD into
1023 assets which are negatively correlated to the USD and/or not sensitive to
1024 the performance of the US economy. The spreading impact of the subprime
1025 crisis remains a major concern and the collateral damages will unfortunately
1026 be far-reaching, spread globally and impact several sectors affecting global
1027 liquidity. Furthermore various central banks have expressed their intention
1028 to reduce some of their USD exposure and to consider an increase of their
1029 gold reserves. These factors, amongst others, should lead to additional
1030 capital inflow into gold as a safe haven. Several volatile trading sessions
1031 with erratic moves are ahead of us, and we would not be surprised to see
1032 gold moving briefly above the $1,000 level.
1033 </commentary>
1034 <commentary metal="silver">
1035 With as little as 13.5% price performance in 2007, silver disappointed. We
1036 had expected silver to trade in the shadow of gold and to close the year
1037 substantially higher. But the physical surplus and an absence of substantial
1038 investment interest stopped silver from trading higher. The risk for renewed
1039 supply/demand imbalances in 2008 will probably prevent silver from moving
1040 significantly higher. Nevertheless, the expected pressure on the USD and the
1041 positive influences from the other precious metals might artificially help
1042 silver to trade toward $19. But the upside trend should remain limited due
1043 to the substantial physical availability. Rallies might be countered by
1044 sharp profit takings. We expect silver throughout 2008 to shift from active
1045 and volatile trading into apathetic sessions.
1046 </commentary>
1047 <commentary metal="platinum">
1048 Platinum rose around 34% in 2007 and again is set to challenge the other
1049 precious metals in 2008. The very fragile and unstable equilibrium in its
1050 tight supply-demand balance will remain a key concern and probably the
1051 underlying reason for several rallies over the course of the year. Increased
1052 appetite for ETFs will further tighten the market and emphasize the risk for
1053 periods of dry supply into possibly increasing demand in the Asian region;
1054 the possibility of a weaker USD is likely to be another supportive factor.
1055 Any rally would trigger a consistent but short-lived increase in lending
1056 rates due to tighter short-term metal availability. Volatility and erratic
1057 trading will be the main concerns and physical squeezes the name of the
1058 game.
1059 </commentary>
1060 <commentary metal="palladium">
1061 Palladium has been the poorest performer in the group with as little as a
1062 +9.6% movement in 2007. We are not expecting a very different pattern next
1063 year. More than sufficient physical metal availability will continue to cap
1064 the upsides. Still, as a matter of diversification, palladium might profit
1065 from marginal money inflow when bound to the other metals in a basket. We
1066 expect palladium to trade, as in 2007, in a narrow band and to provide only
1067 little surprise to the market.
1068 </commentary>
1069 </analyst>
1070 <analyst>
1071 <forename>Rupert</forename>
1072 <familyname>Prest</familyname>
1073 <company>Standard Bank Plc</company>
1074 <forecast metal="platinum">
1075 <lo>$1,375</lo>
1076 <av>$1,525</av>
1077 <hi>$1,720</hi>
1078 </forecast>
1079 <forecast metal="palladium">
1080 <lo>$320</lo>
1081 <av>$355</av>
1082 <hi>$415</hi>
1083 </forecast>
1084 <commentary metal="platinum">
1085 The outlook for platinum remains strong, with any dampening in demand in the
1086 industrial/motor sector and jewellery sector caused by a global slowdown
1087 offset by strong investor demand. We expect the funds to have a healthy
1088 appetite for commodities, certainly for the first 6 months of 2008, and
1089 Chinese demand to remain robust. With the expectation for higher prices
1090 across the metals complex, a significant move into uncharted territory is
1091 very much on the cards and we forecast a high average for the year at
1092 $1,525.
1093 </commentary>
1094 <commentary metal="palladium">
1095 Palladium, though fundamentally less attractive than platinum, is expected
1096 to coattail higher and try to push through $400. The oversupply will surely
1097 weigh heavily on any rally, but investor demand should be strong under $350.
1098 </commentary>
1099 </analyst>
1100 <analyst>
1101 <forename>John</forename>
1102 <familyname>Reade</familyname>
1103 <company>UBS Investment Bank</company>
1104 <forecast metal="gold">
1105 <lo>$700 </lo>
1106 <av>$825</av>
1107 <hi>$1,000 </hi>
1108 </forecast>
1109 <forecast metal="silver">
1110 <lo>$11.60 </lo>
1111 <av>$15.10</av>
1112 <hi>$20.50</hi>
1113 </forecast>
1114 <forecast metal="platinum">
1115 <lo>$1,300</lo>
1116 <av>$1,520</av>
1117 <hi>$1,850</hi>
1118 </forecast>
1119 <forecast metal="palladium">
1120 <lo>$300</lo>
1121 <av>$350</av>
1122 <hi>$420</hi>
1123 </forecast>
1124 <commentary metal="gold">
1125 Speculative and investment demand lifted gold to new all-time highs early in
1126 2008. At $870, we consider gold to be about $150-200 above fair value, by
1127 which we mean the level at which jewellery demand would support - and scrap
1128 supply would stop pressuring - the gold price. This does not mean that gold
1129 will immediately fall, but it does make the metal vulnerable to a sharp
1130 correction. We do expect further gains in the first half of the year, driven
1131 by more safe-haven buying and dollar weakness as the credit crunch triggers
1132 a US and global growth slowdown. A large producer buy-back also could play a
1133 role in pushing gold to its high, although the number of potential
1134 candidates is decreasing. But we expect gold to trade lower in the second
1135 half of 2008 as dollar strength, at least against European currencies, trims
1136 some of its gains. Keep an eye on Shanghai futures exchange turnover.
1137 </commentary>
1138 <commentary metal="silver">
1139 Silver has fallen from favour over the past year, at least relative to gold,
1140 as investors have given up hope of a physical squeeze in silver. This had
1141 been expected to be triggered by inflows into exchange-traded funds, but the
1142 squeeze failed to materialise despite substantial inflows. Silver's nasty
1143 habit of sharply underperforming gold when both metals correct is also
1144 deterring investors from holding this volatile metal. Silver mine supply,
1145 unlike that for gold, is increasing due to new primary and especially
1146 by-product output. Silver demand remains dogged by structural declines in
1147 imaging and has become overly dependent on industrial demand, likely to be a
1148 disadvantage as global economic growth slows. Finally, we see far less
1149 safe-haven buying of silver, not least because of onerous storage issues
1150 involved in holding relatively modest stashes of the metal. Keep an eye on
1151 the gold:silver ratio.
1152 </commentary>
1153 <commentary metal="platinum">
1154 Platinum has the best supply-and-demand fundamentals of all the metals we
1155 forecast, excepting perhaps rhodium. Although some platinum applications are
1156 sensitive to slowing global economic growth, many are not. Overall demand
1157 should hold up well in 2008, especially if Chinese appetite for platinum
1158 remains as undiminished as trading in the first few days of the year
1159 suggests it will. Supply is likely to disappoint again as South African
1160 miners struggle with technical, staffing, safety and bureaucratic issues.
1161 Platinum, like other precious metals, is vulnerable to speculative long
1162 liquidation, and any correction in gold in the second half of 2008 will drag
1163 platinum lower as well, although we expect platinum to be the best relative
1164 performer amongst the four precious metals this year. Keep an eye on ETF
1165 inflows and perovskites.
1166 </commentary>
1167 <commentary metal="palladium">
1168 Platinum's ugly sister is unlikely to get an invitation to the party this
1169 year, and should continue to languish well below its all-time highs seen
1170 early in the decade. Investors should not, however, entirely lose hope. Once
1171 Russian stock sales end sometime in the not-too-distant future, and assuming
1172 that the metal's special properties and jewellery allure continue to attract
1173 scientific investigation on the one hand and marketing efforts on the other,
1174 then this metal should eventually shrug off its decades of underperformance.
1175 Just don't expect any sustained strength in 2008. Keep an eye on Chinese
1176 imports.
1177 </commentary>
1178 </analyst>
1179 <analyst>
1180 <forename>Jeffrey</forename>
1181 <familyname>Rhodes</familyname>
1182 <company>INTL Commodities</company>
1183 <forecast metal="gold">
1184 <lo>$660 </lo>
1185 <av>$755</av>
1186 <hi>$975 </hi>
1187 </forecast>
1188 <forecast metal="silver">
1189 <lo>$12.75 </lo>
1190 <av>$13.95 </av>
1191 <hi>$20.50 </hi>
1192 </forecast>
1193 <commentary metal="gold">
1194 Gold posted a stunning performance in 2007, gaining $201, or 31% year on
1195 year with the average price rising by 15%, and early trading in 2008 has
1196 seen the yellow metal surge to a fresh all-time high of $891. The usual
1197 suspects of geopolitical tensions, rampant oil prices, and an ever-weaker
1198 dollar remain very much in play, but they have now been joined by concerns
1199 over the global banking system following last year's subprime crisis, and
1200 the investment flows into gold have intensified. However gold has now
1201 entered the 7th year of its current bull market, a record bettered only
1202 during the period from 1973 to 1980, when gold rose from $65 to $850. Once
1203 that particular 'bubble' had burst, gold spent 20 years on the back foot as
1204 it retraced towards $250, and my concern remains 'what happens when this
1205 bull run reverses?", because financial history always repeats itself. I can
1206 see the current momentum taking gold as high as $975 in the first half of
1207 2008. However, with the prospect of the US Presidential election in November
1208 likely to give a boost to the ailing greenback, and physical demand for gold
1209 jewellery described as 'depressed at best', I can see a reversal in
1210 sentiment in mid-year.
1211 </commentary>
1212 <commentary metal="silver">
1213 While silver also posted decent gains in 2007, rising 14% year on year and
1214 16% on average, it clearly lagged gold as concerns over the impact of rising
1215 energy costs on global economic activity and demand weighed on the 'most
1216 industrial precious metal'. With talk of economic slowdown, and even
1217 recession in the US, silver could be caught between a strong gold price and
1218 (possibly) weaker base metals. However, as it is less than one third of its
1219 way towards the all-time record high of $50 seen in January 1980, as opposed
1220 to gold and platinum that have both posted records highs in January, silver
1221 has a lot of upside, with the possibility of a spike above $20. However, it
1222 also remains the most volatile metal in the sector, with price prediction a
1223 less-than-exact science.
1224 </commentary>
1225 </analyst>
1226 <analyst>
1227 <forename>Daniel</forename>
1228 <familyname>Smith</familyname>
1229 <company>Standard Chartered Bank</company>
1230 <forecast metal="platinum">
1231 <lo>$1,400</lo>
1232 <av>$1,570</av>
1233 <hi>$1,700</hi>
1234 </forecast>
1235 <commentary metal="platinum">
1236 We are forecasting that the upward momentum in platinum prices carries on
1237 through this year. Part of the reason for this ongoing tightness is that
1238 consumption growth has consistently outpaced supply. The key driver of
1239 demand is the automotive sector, accounting for 61% of consumption last
1240 year. Prospects for this sector look rosy, given increasingly stringent
1241 environmental legislation. Furthermore, autocatalyst demand is being helped
1242 by expansions in the gasoline vehicle fleet in Asia as well as solid sales
1243 of diesel vehicles in Europe. These factors should more than offset
1244 thrifting and weak vehicle sales in North America.
1245 <br/><br/>
1246 Supply developments are also helping. Supply fell by 2% in 2007 due to lower
1247 output from both of the major producing countries - South Africa and Russia.
1248 Looking ahead, high platinum prices, capacity expansions and improved
1249 recoveries should all result in a pick-up in global supply and we are
1250 forecasting 2% growth in 2008, although this will not be enough to close the
1251 gap on demand.
1252 <br/><br/>
1253 Adding to this physical tightness, platinum is also benefiting from the
1254 continued investor interest in commodities as an asset class. Figures from
1255 London-listed ETF Securities show that physical holdings for its platinum
1256 ETF, which was launched in April 2007, stood at 140,000 ounces towards the
1257 end of the year.
1258 </commentary>
1259 </analyst>
1260 <analyst>
1261 <forename>James</forename>
1262 <familyname>Steel</familyname>
1263 <company>HSBC Bank USA NA</company>
1264 <forecast metal="gold">
1265 <lo>$700 </lo>
1266 <av>$800</av>
1267 <hi>$950 </hi>
1268 </forecast>
1269 <forecast metal="silver">
1270 <lo>$13.00 </lo>
1271 <av>$14.00</av>
1272 <hi>$16.50</hi>
1273 </forecast>
1274 <forecast metal="platinum">
1275 <lo>$1,400</lo>
1276 <av>$1,500</av>
1277 <hi>$1,650</hi>
1278 </forecast>
1279 <forecast metal="palladium">
1280 <lo>$330</lo>
1281 <av>$360</av>
1282 <hi>$400</hi>
1283 </forecast>
1284 <commentary metal="gold">
1285 Gold is a traditional safe haven in times of financial, economic and even
1286 geopolitical stress. The ongoing crisis in the credit market and its impact
1287 on the broader financial market has increased investor uncertainty, and is
1288 in our view a major driver of the gold rally: for as long as the credit
1289 crisis continues, gold is likely to be well bid. In an effort to combat the
1290 credit crunch and ward off a possible recession, the Fed, as noted by HSBC's
1291 macro economics team, may lower the Fed Funds target to 3%. This should
1292 support gold in the near term. Higher commodity prices are also supportive
1293 of gold. Potential developments in the bullion and currency market may weigh
1294 on gold later in the year. A recovery in the US dollar, which HSBC currency
1295 analysts believe possible, and contracting jewellery demand in the emerging
1296 world and an increase in scrap may weaken prices later in the year.
1297 </commentary>
1298 <commentary metal="silver">
1299 Silver prices will largely track gold but, unlike gold, silver mine output
1300 will likely rise over 20mn oz based on mine projections. The increase will
1301 mostly likely come from Latin America. Jewellery demand also began to weaken
1302 in 2007 due to high prices, a trend we believe may continue into 2008.
1303 Despite expectations of a production/consumption surplus, we expect silver
1304 to follow gold with a lag.
1305 </commentary>
1306 <commentary metal="platinum">
1307 Platinum continues to have in our view the most bullish fundamentals of the
1308 precious metals complex. Mine supply, although expanding, is growing at a
1309 much slower pace than that projected by the large South African producers.
1310 This is due primarily to technical issues and safety-related shutdowns.
1311 Despite substitution with palladium and thrifting by autocatalyst
1312 manufacturers, demand from the automotive sector continues to grow robustly.
1313 Jewellery demand, we believe, has softened as result of high prices, but
1314 overall we now expect supply/demand balances to remain tight in 2008.
1315 Although we are projecting a small production/consumption surplus for 2008
1316 of less than 200,000 oz, we do not believe it will be sufficient to impede
1317 further price gains.
1318 </commentary>
1319 <commentary metal="palladium">
1320 Although demand from the automotive sector remains robust, we expect the
1321 palladium market to remain in surplus for this year as a result of steady
1322 Russian stockpile sales. The price of palladium, in our view, has been
1323 largely supported by the strength in the platinum price. Should the
1324 commodity markets soften, we expect that palladium would show the first
1325 signs of weakness. However, due to recent price appreciation in platinum,
1326 palladium will be higher than its inherent fundamentals would suggest.
1327 </commentary>
1328 </analyst>
1329 <analyst>
1330 <forename>Glyn</forename>
1331 <familyname>Stevens</familyname>
1332 <company>INTL Commodities Inc</company>
1333 <forecast metal="platinum">
1334 <lo>$1,425</lo>
1335 <av>$1,620</av>
1336 <hi>$2,100</hi>
1337 </forecast>
1338 <forecast metal="palladium">
1339 <lo>$280</lo>
1340 <av>$365</av>
1341 <hi>$460</hi>
1342 </forecast>
1343 <commentary metal="platinum">
1344 Solid industrial demand, likely production problems, increasing investment
1345 opportunities and global unrest all point to $2,000 platinum. As crazy as
1346 this may seem, and however brief it may last, this represents less than a
1347 35% increase in price from the year's opening, a move certainly not
1348 unprecedented in commodities recently. Reality may then dawn, perhaps
1349 substitution will set in wherever possible, and the rally may fizzle out.
1350 Recession may even bite in the developed nations of the world - hence there
1351 could be a retracement in price in the latter stages of 2008.
1352 </commentary>
1353 <commentary metal="palladium">
1354 The main thing going for palladium is the meteoric rise in platinum. This
1355 will both encourage substitution by industrials and buying of the "cheapest"
1356 pgm by speculators. However, fundamentals remain very poor. Hence any spike
1357 in price should be short lived.
1358 </commentary>
1359 </analyst>
1360 <analyst>
1361 <forename>Bob</forename>
1362 <familyname>Takai</familyname>
1363 <company>Sumitomo Corporation</company>
1364 <forecast metal="gold">
1365 <lo>$650 </lo>
1366 <av>$850</av>
1367 <hi>$1,000 </hi>
1368 </forecast>
1369 <forecast metal="silver">
1370 <lo>$12.00 </lo>
1371 <av>$15.00</av>
1372 <hi>$18.00</hi>
1373 </forecast>
1374 <forecast metal="platinum">
1375 <lo>$1,200</lo>
1376 <av>$1,500</av>
1377 <hi>$1,800</hi>
1378 </forecast>
1379 <forecast metal="palladium">
1380 <lo>$300</lo>
1381 <av>$350</av>
1382 <hi>$450</hi>
1383 </forecast>
1384 <commentary metal="all">
1385 The Fed's dilemma remains the equally unpleasant choice of recession or
1386 inflation. Until the devastating effects of the sub-prime crisis work their
1387 way through the world's financial system, the Fed will continue to cut
1388 rates, risking inflation and accepting a weaker dollar. Commodity prices
1389 will continue to be the principal beneficiary of this confluence of events.
1390 <br/><br/>
1391 As an asset class we remain bullish for commodities, in particular gold, oil
1392 and the agricultural sector. Strong institutional demand from index and fund
1393 investors will underpin investment in gold and oil as the combined effects
1394 of political uncertainty, terrorist activity and the potential for supply
1395 disruptions plague these markets. The agricultural sector will continue to
1396 react positively to the effects of grain shortages brought about through
1397 demand from China as well as the diversion of grain feed stocks for the
1398 production of ethanol.
1399 <br/><br/>
1400 The threat of a global recession will increase if the US does not act
1401 prudently and convincingly to restore confidence in its financial house. In
1402 that event, extreme sell-offs in all dollar-denominated assets will occur,
1403 and 2008 will be remembered as the most volatile year in a decade.
1404 </commentary>
1405 </analyst>
1406 <analyst>
1407 <forename>Edel</forename>
1408 <familyname>Tully</familyname>
1409 <company>Mitsui & Co. Precious Metals, Inc</company>
1410 <forecast metal="gold">
1411 <lo>$750 </lo>
1412 <av>$903</av>
1413 <hi>$1,045 </hi>
1414 </forecast>
1415 <forecast metal="silver">
1416 <lo>$13.50 </lo>
1417 <av>$15.10</av>
1418 <hi>$18.10 </hi>
1419 </forecast>
1420 <forecast metal="platinum">
1421 <lo>$1,400</lo>
1422 <av>$1,675</av>
1423 <hi>$1,850</hi>
1424 </forecast>
1425 <forecast metal="palladium">
1426 <lo>$335</lo>
1427 <av>$370</av>
1428 <hi>$440</hi>
1429 </forecast>
1430 <commentary metal="gold">
1431 The rush to own gold in the current climate and the belief that the bull run
1432 will be long term in nature is perfectly captured by the depth of investor
1433 interest as reflected in the weekly exchange participation and ETF
1434 accumulation. It will be impossible to remove speculative activity from the
1435 gold price equation of 2008. However, it is essential to throw in a weak
1436 USD, a mounting oil price, falling interest rates, rising inflation, and
1437 credit market turmoil into the price mix. When occurring in tandem, these
1438 are powerful forces for considerably higher moves in the yellow metal.
1439 Persistent sharp volatility movements will act to significantly dampen
1440 physical demand, but restricted mine supply along with further producer
1441 buy-backs will continue to offer support. The health of the global financial
1442 economy, in addition to the direction and the pace of USD movements against
1443 the EUR, will be one of the major drivers in the sustainability of this
1444 rally in 2008.
1445 </commentary>
1446 <commentary metal="silver">
1447 Our over-riding belief is that silver will continue to play sideshow against
1448 gold, and while the metal may appreciate to $18 this year, gold will retain
1449 the title of chief gainer. Its fundamental attributes will not be the prime
1450 driver of price and rather contagion from the precious metals complex will
1451 greatly influence silver's price path. Sombre physical demand will act to
1452 put some constraint on price rallies. Greater investor participation in
1453 commodities, along with a supportive macroeconomic environment fueling the
1454 precious metal group, will be the key ingredients for silver to trend
1455 higher, but not at meteoric or parabolic levels.
1456 </commentary>
1457 <commentary metal="platinum">
1458 The surge in speculative activity and the inherent fundamental market
1459 tightness means that a backwardation environment for platinum is never far
1460 away. Platinum ETF investors firmly signalled their bullish attitude in
1461 2007, and their participation could more than double in the year ahead.
1462 China, as the chief global jewellery purchaser, remains price insensitive to
1463 elevated movements of platinum into this region observed from official
1464 import data and notably higher turnover on the Shanghai Gold Exchange.
1465 However, demand from other regions is firmly price elastic and jewellery
1466 off-take will suffer. Diesel penetration in the EU market continues to grow
1467 at the expense of gasoline and the US is slowly waving the flag for future
1468 diesel adoption; however, thrifting and substitution will remain
1469 commonplace. The continuing safety drive by South African unions is likely
1470 to escalate in 2008, thereby contributing to an already-challenged supply
1471 environment and an elevated platinum price.
1472 </commentary>
1473 <commentary metal="palladium">
1474 Palladium will remain very much in platinum's shadow, and the metal's
1475 preference to linger largely in a sideways trading pattern for extended
1476 periods will continue. Even if speculative participation remains
1477 considerable, the large surplus in the market will be a sufficient cap
1478 against palladium reaching $500 in 2008. Fast-growing auto markets such as
1479 China, Russia and Eastern Europe will add firm support. However, weighing
1480 down this escalation will be pressurised US demand and the danger of ripple
1481 effects in a borderless global economy. Furthermore, the gasoline-dominated
1482 US market is moving increasingly towards compact vehicles, with smaller
1483 engines and, in turn, lower PGM requirements. The wildcard in the mix could
1484 have been the actions of Russian stock flows. However, we do not believe
1485 that this will be a factor for 2008, and is more likely to manifest towards
1486 the close of the decade.
1487 </commentary>
1488 </analyst>
1489
1490 <averages>
1491 <label>Average forecasts</label>
1492 <classname>avergaes</classname>
1493 <forecast metal="gold">
1494 <lo>$760</lo>
1495 <av>$830</av>
1496 <hi>$900</hi>
1497 </forecast>
1498 </averages>
1499
1500 </review>
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