Precious Metals Markets Outlook 2018 / Commodities / Gold and Silver 2018

The first trading days of2018 are confirming signs of renewed investor interest in the precious metalssector after a long period of malaise.

Gold and silver markets entered theyear with some stealth momentum after quietly posting gains late in 2017. Goldfinished the year above $1,300/oz. – its best yearly close since 2012.

Over the past five years,the yellow metal has been basing out in a range between $1,050 and $1,400. Apush above $1,400 later this year would therefore be significant.

It would get momentumtraders and mainstream financial reporters to take notice.

The alternative investingworld was enthralled by Bitcoin in 2017. While we don’texpect a Bitcoin-like mania to take hold in precious metals in 2018, we doexpect gold and silver markets to make some noise.

Stimulusto Push Up Commodity Prices Again

Even as the FederalReserve vows to continue raising its benchmark interest rate and “normalizing”its balance sheet, a flood of new fiat stimulus is set to hit the economy. Therecently passed tax cuts will cause hundreds of billions – perhaps eventuallytrillions – of dollars to be repatriated back to the United States.

For years, many corporationshave hoarded business assets overseas in more favorable tax environments. TheU.S. had one of the world’s least competitive corporate tax structures. Withthe corporate rate dropping to 21% in 2018, the U.S. suddenly becomes a muchmore attractive place in which to set up shop.

The good news is thatdollars are coming back home and getting reinvested in capital projects, wageincreases, new hiring. The potentially bad side effect is that higher inflationincreasingly shows up in consumer prices.

An inflation uptick wouldlikely cause long-term interest rates to rise, which would dig the government’s$20.6 trillion debt hole deeper. (Federal deficits are expected to grow by morethan $1 trillion under the GOP’s latest budget, which fails to pair tax cutswith spending cuts.)

The flood ofdeficit-financed stimulus sets the economy up for a short-lived spurt of gains…followed by longer duration debt and inflation pains. For now, investors arestill enjoying gains, as reflected by the ongoing strength of the stock market.But inflationary pressures are already building in raw materials markets.

MiningOutput Continues to Decline

The supply and demandfundamentals for precious metals are improved in 2018. Low gold and silverprices over the past few years have hurt the mining industry. Although it hascontinued to operate existing mines – sometimes even at losses – it has slashedexploration and development of new projects. That will mean years of stagnatingor even declining output ahead.

Metals Focus projects mining outputof gold in 2018 will be 3,239 tonnes, a slight decrease from 2017. Analystsexpect a more significant drop could occur in 2019.

A similar pattern isexpected to play out in silver, though it’s more difficult to forecast since few primary silverminers exist (most silver comes as a byproduct of base metals miningoperations). Demand for silver is also more variable, with investment demandbeing the biggest wild card.

Commodity marketsanalysts at TD Securities believe silver may be the metal to own in 2018.According to TD’s 2018 Global Outlook, silver prices should hit $20/oz thisyear (after finishing 2017 just under $17).

PalladiumIs on a Tear

Turning to the platinum groupmetals, platinum is widely expected to go into a supply deficit this year ornext after finishing 2017 at a small surplus. Its sister metal palladiumexperienced an annual supply deficit of 680,000 ounces last year and growingconcerns of shortages, helping drive its big price gains.

Even with palladiumprices now touching all-time highs, available supply is still on the wane. HSBCforecasts an expanding palladium deficit in 2018 to more than 1 million ounces.

The growing shortagefigures to continue pressuring palladium prices upward. It’s also bullish forplatinum. That’s because automakers and other industrial users of palladium nowhave an incentive to switch to less expensive platinum where possible.

Large-scale substitutionsdon’t take place immediately. But in 2018, demand drivers could finally startshifting back in favor of platinum.

Platinum, silver, andgold investors who have sat patiently on their positions waiting for them tobreak through to the upside will be rewarded. It’s a question of whether thathappens early in 2018 with the economic stimulus, late in 2018 as a reaction topotential tremors in bond and stock markets, or in 2019 when supply destructionstarts to kick in more strongly.

Only “Mr. Market” knowsfor sure.

While you can still buygold under $1,400 and silver under $20, they remain (for now) compellingvalues. Silver looks especially compelling given its cheapness relative to goldand virtually every asset on the planet.

Stefan Gleason isPresident of Money Metals Exchange, the national precious metals company named 2015"Dealer of the Year" in the United States by an independent globalratings group. A graduate of the University of Florida, Gleason is a seasonedbusiness leader, investor, political strategist, and grassroots activist.Gleason has frequently appeared on national television networks such as CNN, FoxNews,and CNBC, and his writings have appeared in hundreds of publications such asthe Wall Street Journal, Detroit News, Washington Times, and National Review.

© 2018 Stefan Gleason - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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