Top Precious-Metals Forecasters Say Forget Gold, Go to Palladium

  • China car sales may boost palladium used in autocatalysts
  • Gold value seen eroded by rising U.S. interest rates, dollar

Investors may not want to get too used to this month’s surprise rally in gold.

Some of the most-accurate precious metals forecasters say the gains won’t last and instead expect palladium to advance, even though it’s off to the worst start in decades.

After dropping for three straight years, gold has advanced more than any other metal in January. Bullion’s appeal as a haven got a boost from political tension in the Middle East and Asia and global market turmoil. At the same time, industrial commodities have tumbled. Palladium, a metal used mostly for catalytic converters in cars, fell 12 percent in January.

“The gold market is benefiting from geopolitical news and Chinese stock-market uncertainty, and these factors are unlikely to last,” said Bernard Dahdahat Natixis SA, who made the most-accurate call on gold last year in a survey of 31 analysts by the London Bullion Market Association, an industry regulator. “Palladium looks far more appealing based on its fundamentals. It is going to rally on increased Chinese car demand.”

Higher U.S. interest rates and a stronger dollar this year will return the pressure on gold, while accelerating demand for cars in China, the world’s largest market, will give a jolt to palladium, according to Dahdah, who was awarded a 1-ounce gold ingot by the LBMA for a forecast that was within $1 of the average price in 2015. He expects gold to average $970 an ounce in 2016, down about 11 percent from now, while palladium will surge 24 percent on average to $610 an ounce.

Other Forecasts

He isn’t alone. Rene Hochreiter of Noah Capital Markets (Pty) Ltd., whose silver forecast last year was the most-accurate tracked by the LBMA, said gold will average $1,050 and palladium $500 this year, compared with $493.63 now.

Gold climbed 3.1 percent this month to $1,093.80 in London, touching a two-month high on Jan. 8. Demand for a store of value rose as a rout in Chinese stocks spread around the world, North Korea tested a nuclear bomb and tension flared between Saudi Arabia and Iran. Palladium, more like an industrial metal because it’s mainly used in vehicles to curb harmful emissions, is having the worst start to a January since at least 1993.

Glyn Stevens of INTL FCStone Ltd. in London was the best platinum and palladium picker in the LBMA’s survey. He declined to comment when contacted by Bloomberg. The LBMA, which oversees the London bullion market, will disclose the 2016 forecasts by its survey participants later this month.

Bearish Speculators

Gold bears are outnumbering bulls. Money managers are holding near the biggest net-short position in U.S. futures since at least 2006, U.S. Commodity Futures Trading Commission data show.

Speculators have cut their net-long position in palladium by 42 percent since October. The metal tumbled 29 percent last year, the most since 2008, as South African mineproduction rebounded and on concern that China’s slowdown will cut demand. The country accounts for more than a fifth of global palladium consumption.

With so many investors already bailing on palladium, there may be less room for more declines, ABN Amro Bank NV said in a Jan. 12 report. Concerns about China’s economy are overdone, the country’s imports should pick up and global growth will improve, it said.

The state-backed China Association of Automobile Manufacturers said Tuesday that vehicle deliveries should gain about 6 percent this year, after growth slowed in 2015 to 4.7 percent, a three-year low. Most of the cars sold in China are fueled by gasoline, which requires catalytic converters using primarily palladium to cut harmful emissions.

Reduced supply of the metal also may support prices, Hochreiter said. The world’s largest miners, including Anglo American Platinum Ltd. and Lonmin Plc, have already cut or pledged to reduce production. Palladium is typically mined alongside platinum.

An improving global economy would be better for palladium because industrial applications account for the majority of demand, compared with about 10 percent for gold. While bullion remains sensitive to movements in financial markets, it will be dominated by the outlook for U.S. interest rates, Vyanne Lai, an economist at National Australia Bank Ltd. in Melbourne, said this week.

“We’ll see a slow, steady increase of rates in the U.S., and that’s going to cap any potential run up in gold,” Hochreiter said by phone from Johannesburg. “Barring a crisis, gold’s going to drift lower from where it is.”

Before it's here, it's on the Bloomberg Terminal.