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Precious metals

Precious metals market

Dynamics of prices for gold

The average price for gold in 2019 amounted to $1,392.6 per troy ounce, what is almost 10% higher than the price of 2018 ($1, 257.2). The sharp rise in the prices was conditioned by speculative factors arising from insecurities of foreign policy that took place throughout the year 2019.

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Global uncertainty resulted in growth of investment demand for gold: in the first half of 2019 the principal demand was created by central banks preparing themselves to future economic perturbations, which, however, have left the world economy untouched or haven’t shown their qualities expected. Consequently, in the second half of 2019, central banks has considerably cut down the volume of purchases.

In the latter half of the year, ETF were more active having increased their reserves by 401.1 t (+421%) by the end of the year. So great activity of investors, for which investments, including   gold-backed funds, have become the prime alternative to other assets depreciating in the face of a soft monetary policy of the US Federal Reserve System.

In general, in 2019 the demand for gold slowed down and made up 99% that is the level of the year 2018. The key reason of slumping demand is the drop in gold consumption within the jewelry industry that mainly depends on domestic demand in China and India (56% of the gross world demand for jewelries for these two countries), which sank by 9% and 7%, correspondingly. Note that the demand for investment gold in these countries has also reduced.

High prices for gold, on the one hand, have reduced possibilities for investments in metal, especially for private investors, but, on the other hand, brought goldmining companies to revising their investment plans, what is especially crucial, considering the fact that gold mining rate has first dropped since 2008.

The last fact is especially important with regard to projected prices for metal. On condition of anchoring the current level of mining (3.3-3.5 kt per year) the available underground gold reserves may be sufficient for 15-20 years if using the current mining technologies.

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The recent forecasts reflect the influence of the today’s situation of coronavirus spread, and that’s why they may be a kind of overestimated. Compared to the forecasts made in autumn, the prices for gold have been increased by 6-7%. With weakening media reporting on the coronavirus problem, with all else being equal, the prices will trend towards $1,480 -$1,500 per troy ounce. 

Silver market

The average price for silver in 2019 showed up by 2.2% higher compared to the level of 2018 ($16.07 vs $15.71 per troy ounce).

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Overall dynamics turned out to be almost identical to that one prevailing in the world gold market, and it is not surprising taking into regard close correlation between these two metals. Besides, the rise in prices for silver in the latter half of the year has confirmed that, currently, silver prices are mainly set based on investment demand, but not on industrial demand as in the years past.

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It is worth pointing out that silver has still good position as a metal in demand in the industrial sphere. Silver* production in 2019 has slightly sank till 26.7 kt (28 kt – in 2018 г.), but silver consumption in industrial segment and in jewelry industry remained almost unchanged – 32.3 kt in 2019 vs 32.7 kt in 2018. GFMS assumes that such level of demand is driven by the situation in the USA-China trading relations. In their forecasts for 2020 it is emphasized that if these countries make a deal, the level of silver consumption in industrial sector will grow by 3-3.5% due to recovering the production chains.

The demand for silver in jewelry industry has risen in spite of metal price hikes. According to estimates the year 2020 will not bring any changes in this segment thanks to strong sales in the USA and India.

Global PV market is still promising for further development of the whole silver market, but over the last years a trend for reduction in silver consumption has emerged, and some other compounds are involved more often. High prices for silver may provoke acceleration of this trend. However the estimate that the annual consumption level in this segment till 2025 will make up 3.5 – 4.0 kt of silver is a realistic assessment. At the same time electric vehicles market may provide extra demand of 0.8 -1.0 kt of silver per year also for the period till 2025. 

*Does not include secondary metal production that totaled to 4.9 kt (4.7 kt – in 2018)