Trending Analysis of the Global Precious Metals Market

Precious metals are rare naturally occurring metallic elements. In history precious metals were used as currency. However, in modern times; precious metals have become investment vehicles, that offer an alternative to stocks and bonds. The metals that drive the precious metals market are gold, silver and platinum. While the precious metals market is dominated by American and European corporations, Asia is the largest precious metals market in the world. According to the Bloomberg precious metals market data, the U.S, Canada and Germany have some of the largest precious metals companies in the world, spearheaded by Alaska Gold Corp and Alexco resource group. The same data shows that India, Singapore and China are the largest consumers of precious metals. There are a number of factors that influence the precious metals markets.

The first of these are activities of the investment sector. Global financial institutions move money around investment options on a daily basis. These investments are speculative in nature, and may either move prices up or down, depending on the bankers expectations. For instance, if Goldman Sachs expects Gold prices to rise, they pour massive amounts of money into this market. This causes the prices of gold to rise, based purely on speculation, as opposed to the forces of demand and supply.

The second factor that influences the precious metals market is end-user trends. End users in the precious metals market are mainly jewelry buyers. Whenever there is an increase in end user demand for jewelry, prices in the precious metals market rise. For instance in the holiday seasons, prices of precious metals rise as more and more people buy jewelry to offer as presents. 

Another factor that influences the precious metals market is general economic dynamics. When the global economy performs well, it creates a double effect in the precious metals market. First, it lowers the prices of gold and silver, as people seek out riskier investment options. Secondly, it causes the prices of platinum to increase. This is because, relative increases in the levels of wealth has a direct correlation to the demand for jewelry.

Global changes in demand for other products too, contributes to price fluctuations in the precious metals market. For instance, the global automobile industry has a direct correlation to platinum price movements. In order to understand the precious metals market better, it is important to analyze each of its key sectors individually.

The Gold market

Gold prices fluctuate up and down depending on the performance of the global economy. In times of global economic uncertainty, gold prices rise sharply, as it is considered a safe haven investment. After the market turmoil of 2008, gold prices rose sharply, hitting almost $ 2000 dollars per ounce in electronic trading. However, since 2011, the global economy has seen a slight improvement. This has seen gold prices fall albeit slowly as there is still a lot of uncertainty in the global economy. Below is a chart on gold prices between July 2012 and July 2013. It is noticeable that, save for a few fluctuations here and there, the overall trend in gold prices has been downwards.

Going forward the gold sector of the Precious metals market will continue to experience a decline in prices. This is because, there is increasing confidence that the global economy will stabilize, before the year 2020. A good indicator of this is the way investment banks are cutting their forecasts on gold in the next quarter of 2013. For instance, Barclays Bank Plc has cut its gold forecast for 2013 to $ 1393 an ounce, from an earlier forecast of $ 1,483 per ounce. In its statement, the company stated that, gold prices are being affected by strengthening equity markets, and a stronger dollar.

The Silver market

The silver market more often than not goes hand in hand with the gold markets. In fact, both are usually traded next to each other in electronic trading. In the last one year from July 2012 to July 2013, silver prices have been on the decline. Below is a graphical representation of silver prices over the last 12 months.

Analysts predict that silver prices in the next few years will keep on declining. The main reason, is that the Equity markets are expected to firm, in the next couple years. Leading the way is global banker HSBC. The bank’s management stated that, it expects the U.S equity markets to strengthen, thereby weakening the silver prices.

The Platinum market

Over the last three years, the platinum segment of the precious metals market has experienced some serious volatility. The volatility stems from a platinum surplus in the year 2011, when there was a total demand of 7.3 million ounces, against a supply of 7.4 million ounces. The global platinum market is mainly driven by the automobile industry which accounts for 3.23 million ounces in platinum consumption. The rest is consumed by the jewelry market. Because of the large amount of platinum that goes into the automobile industry, there is a direct correlations between platinum prices and car sales. Below is a graphical representation of the same.

Unlike the gold and silver prices, the forecast for platinum prices is positive. This is because of platinum supply constraints in South Africa, the world’s main supplier of platinum. As supplies near the surface continue to decline, producers are forced to dig deeper. This creates challenges in platinum production and will shore up prices.

Overall precious metals forecast in coming years

According to a research by Yahoo Finance, the global precious metals markets is expected to grow by a cumulative 5.7% in the next five years. This growth will largely be driven by jewelry sales, consumer electronics, and the automobiles markets. Moreover, an increased uptake of precious metals by developing countries will led to increased demand in the long run. One of the areas to watch especially in the platinum sector is the electric car market. An increased uptake of electric cars by the developed world will see an up-shoot in the price of platinum in the long run.

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