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New Year Brings Perils and Opportunities in Stocks, Metals, Dollar
Greenback and Palladium Had Banner Year; Metals Hit Supply Deficit
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Happy New Year and welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
Well, as markets begin trading in 2015, it’s worth taking account of where we’ve been. And more importantly, where we may be headed in the New Year.
In 2014, precious metals markets moved mostly to the downside. Leading the decline was silver, which shed 23.4% on the year to finish at $15.72 an ounce as trading closed on New Year’s Eve.
Gold held up relatively better. Prices for the yellow metal see-sawed around the $1,200 level in the fourth quarter, ultimately finishing out the year at $1,183 an ounce – a modest 3.3% decline for the calendar year.
Turning to the platinum group metals, platinum fell 14.4% in 2014, finishing at $1,207 per ounce. Its sister metal palladium however was the one bright spot in the precious metals space. Palladium prices advanced by 9.6% last year to finish at $797 an ounce.
As trading for 2015 kicks off on this Friday morning, precious metals started off strong but have given back their gains. Currently gold and silver are off just less than 1% so far on the day from where they closed on New Year’s Eve.
So what’s in store for the new year? Gold and silver markets enter 2015 battered and bruised. If the U.S. dollar continues to strengthen this year, the metals could receive another beating. However, supply and demand fundamentals for precious metals are more favorable now than they were a year ago. The reason is that lower prices are making mining increasingly uneconomic. New mines can’t be financed and many existing mines are at risk of closure.
HSBC forecasts that in 2015 silver mine supply will decrease by 18 million ounces. That would put silver into a large annual deficit, as industrial demand for the metal is widely expected to increase by several million ounces. HSBC analysts expect silver prices to rise as high as $21.25 and average $17.65 per ounce this year. And that’s the mainstream view.
As silver moves toward a supply/demand deficit, the platinum and palladium markets are already experiencing deficit conditions. The platinum market operated on a 1.2 million ounce deficit in 2014, resulting in depletion of existing stockpiles. TD Securities analysts see platinum prices reaching $1,600 an ounce by the end of the year. Citi Research looks for platinum to average $1,350 this year.
Meanwhile, palladium, the best performing precious metal of 2014, and 2013 as well for that matter, could continue to outperform in 2015. The shortfall in palladium supplies is projected to be as high as 1.6 million ounces – which is a big number given how small a market palladium is. However, the deficit could shrink if South African mines are able to boost production after a year of crippling labor union strikes.
It must also be cautioned that all of these forecasts could come undone if the U.S. dollar continues to rise. A steeply rising dollar on the foreign exchange markets put downward pressure on all commodity prices in the second half of 2014. That, in turn, could put negative readings on inflation gauges in the early goings of 2015, which would be cause for concern in the halls of the Federal Reserve.
Fed officials view preventing deflation as one of their core mandates. They continue to telegraph rate hikes by mid-year on the assumption of continued economic strength, even as Europe and Japan are moving aggressively to stimulate their moribund economies.
It wouldn’t be too surprising if at some point this year the Fed did an about face and launched a new stimulus program. The odds of more stimulus will increase if the stock market starts following in the footsteps of crude oil and copper, which both plunged late in 2014 and often serve as leading economic indicators.
A boost from the Fed later this year could add fuel to an already favorable outlook for precious metals from a fundamental basis. Nearer term, the metals markets could continue to face headwinds from a strong dollar and deflationary pressures.
Investors in physical precious metals should keep a long-term perspective. Under our monetary system, bouts of deflation are temporary and always resolve in a resumption of inflation. It is simply impossible for a government and a consumer, as leveraged as they are, to sustain their debt loads without a gradual future reduction of the real value of those debts in the form of dollar depreciation. Quite simply we, as a nation, are addicted to inflation, and precious metals remain one of the most viable long-term hedges against accelerating inflation.
When you buy gold and silver at today’s prices, you can rest comfortably knowing you’re buying an asset class that offers good relative value compared to other financial assets. If you buy bonds today, you’ll be stuck with historically low yields and face the risk of principal loss when rates eventually rise. If you buy stocks today, you’ll be buying near all-time nominal highs and at valuation levels that are similar to previous market tops.
We can’t know for sure whether gold and silver will outperform stocks and bonds in 2015. But we are confident that those who diversify into physical precious metals today will be rewarded with greater financial security and higher prices looking out over the next few years.
It appears to be a great time to shed overvalued stocks and rotate the funds into undervalued precious metals. If you do so within an IRA, you can even avoid capital gains taxes on your stocks. Please go to MoneyMetals.com or give us a call at 1-800-800-1865 to learn about buying physical precious metals in your IRA. It’s actually quite easy to do so.
Well that will do it for this week’s Market Wrap Podcast, thanks for listening. And I hope you’ll try to catch each and every one of our weekly podcasts this year – where we have even more great interviews and commentary in store for our dedicated listeners.
Until then this has been Mike Gleason with Money Metals Exchange reminding you that we remain fully committed to getting you the most value for your depreciating dollar… with speed, with accuracy, and with top notch service. Happy New Year and have a great weekend everybody.