The World Bank is looking for precious metals prices to pullback to averages
(Kitco News) - In the Word Banks' latest report, they have noted that its Precious Metals Index fell by 3 percent in the third quarter of 2021. It noted that this is due to declining investor sentiment stemming from higher real interest rates and a stronger U.S. dollar, as well as lower physical demand. Moving forward the projections are for the average price to move back to the averages (5% higher) in 2022 on expectations of a tightening of monetary policy. There are some upside risks to this outlook, these include the threat of new virus variants, amplified geopolitical tensions, and more persistent inflation than anticipated.
The report noted that gold prices fell in part driven by a slump in investment demand amid a rise in interest rate yields. The yield on 10-year Treasury Inflation-Protected Securities (TIPS) increased by 10 basis points in September and the U.S. dollar strengthened after the U.S. Federal Reserve signaled that it would begin to taper off its bond purchases before the end of the year. Holdings of gold-backed exchange-traded funds (ETFs) fell sharply in the quarter, led by outflows from North American investors. Central banks have also reduced gold purchases in recent months. On the other hand, firm jewelry demand in China and India provided some reprieve to gold prices. Gold prices are anticipated to average nearly 1.5 percent higher in 2021, before falling by 2.5 percent in 2022, weighed down by higher yields.
When talking about Silver the bank said the drop was driven by similar factors as gold. There are early signs that industrial demand for silver, which had been supportive of prices since the second half of 2020, has started to wane. China’s manufacturing PMI fell to below 50 in August and September, indicating a contraction in industrial activity, while Japan’s PMI reading has trended lower and well below the global average. China and Japan are major producers of products containing silver, such as electronics, solar panels, and photographic equipment.
Lastly, on precious metals, platinum struggled due to weak demand from the auto sector. A shortage of semiconductors has caused a slump in global auto production, and hence autocatalyst demand, which accounts for more than a third of platinum demand. Automobile manufacturers have warned that the global semiconductor chip shortage is likely to extend well into 2022. On the supply side, South African mines have been operating normally after production was hampered by pandemic-related
shutdowns and plant outages last year. The rebound in supply alongside waning demand is likely to exert downward pressure on prices. Platinum prices are forecast to fall by 9 percent in 2022, following a projected increase of 25 percent in 2021.