It is obvious that, as before, the main role of gold is to stabilize financial markets. Gold is to a lesser extent an industrial metal and this is why its price did not sagged under the impact of the crisis. On the contrary, it seemed to go up to the level of $1,000 per ounce, but the sharp drop in demand for jewelry on the major markets in the United States and India which was not offset by higher demand on investment markets (for bullions and coins) did not permit gold prices to rise.
As we expected as far back as last February, gold prices will stay within the range of $900-950 per ounce coming close to $1,000 per ounce in the fourth quarter.
Gold prices will be also maintained due to the problems experienced by real gold producers from South Africa and Australia, which will result in lower gold output globally despite its growth in Russia and the United States.
The more so, the resources offered by the secondary market (gold scrap) have already been significantly exhausted in 2008.
Much will depend on the dollar value and ways pursued by the United States to creep out of its budget deficit.
If the new U.S. administration will continue pumping the economy with newly issued money this may boost gold prices above $1,000 per ounce. So investments into bullions will never be amiss, particularly in the long term.
However, it is noteworthy that silver prices, though following gold, are much more volatile and their growth rate has significantly outstripped gold during the last five years.
Silver is the metal which is eagerly used for hoarding purposes in much the same way as gold, but being an industrial metal more than other precious metals it is broadly used in industrial processes.
It should be said that it is always good to have silver at home: as a set of silver dishware or bullion in a water jug.
On the contrary, platinum markets have experienced drastic changes along with the entire economic picture of the world during the last year. Yet it is difficult to say for how long. What kind of changes are they? Speculators have abandoned the markets for some time. Their role in fomenting tension on the platinum market is colossal, and on other markets as well.
Right now the situation on platinum markets as on the majority of other industrial markets is close to classics - demand is balanced by supply and both are transparent and predictable.
There is real industrial demand on major auto-catalyst and petroleum-catalyst markets, on chemical and glass-industry markets as well as there is consumer demand for platinum and palladium jewelry. There are manufacturers of these metals in South Africa and Russia, as well as in North America.
Major industrial consumers of platinum metals have significantly decreased their needs, which seemed to facilitate a landslide in platinum prices. This has actually happened, but for a very short while, when the market recognized that the problems besieging platinum manufacturers are of a system and long-term character. So there is no reason to expect greater supply from anywhere.
South African industrialists are concerned with power shortage, greater rate of accidents in mines and smelting industry, and difficult relations with authorities; but the main thing is switching over to processing more complex ores of the UG–2 Reef instead of the depleting Merensky Reef.
All this requires additional expenses and new technological ways which have so far not been found.
Russian producers are decreasing their platinum output for some successive years already and it seems there are no new platinum sources to be discovered in the foreseeable future, while Russia’s state reserves are not endless.
All this served to keep the major metals, platinum and palladium, at a rather high price level.
Along with gradual growth of demand in the industries which happen to be major consumers of these metals prices will go up too. As I believe, the current prices for platinum and palladium as well as for junior metals in this group are just a reference point for further upward movement.
The economically emerging Asia may offer new grounds for faster growth. This may be accompanied by a year-to-year growing investment demand for both metals. It means many have already agreed to a further rise in prices for these metals.
Igor Tikhov, General Manager of OAO Krastsvetmet, Honored Metallurgist of the Russian Federation
