NEW YORK (ResourceInvestor.com) -- Jon Bergtheil is the Global Metals Strategist for JPMorgan in London. Another fitting title would be Global Metals Wizard after his outstanding performance in the LBMA Precious Metal Forecasting competition which we have hijacked and repurposed for the greater good.
Bergtheil turned in the best results at the half-year among 25 gold pundits with a score that was 98% accurate. He quite comfortably beat out Daniel Hynes of ANZ Bank in the Antipodes. Bergtheil was no slouch in the other precious metals either and was ranked 6th overall with a strong score of 92.4%.
So we asked the forecasting wiz for his views on the precious metals for the remainder of the year:
1. Gold: The metal initially suffered from the prospect of official sales as an input into third world debt relief but once that proposal lost global support, a key threat was removed. Gold in fact NEEDS rising Central Bank and investor sales each year as mine supply (which has peaked) is now deficient by 750 tonnes per annum (or 23% of current fabrication demand) in supplying annual jewellery and other fabrication demand. At a growth rate of 3.5% per annum in fabrication demand, non-mine supply will need to be 1400 tonnes per annum by the end of the decade in order to balance the market. Short term drivers such as the dollar will determine short term trends but the underlying positive momentum behind gold is the fact that Central Bank sales are no longer the threat they were in the nineties but are now a vital necessity to balance the market. The fact that an emerging professional class in developing countries is initially base-metal-intensive in its demand (through purchases such as housing and autos) and only becomes luxury-goods intensive at a later stage bodes very well for future gold demand out of places like China. High oil revenues for a historically gold-friendly Middle East are a further supportive factor which lead us to believe that gold will do as well in 2006 as it has done so far in 2005.
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3. Palladium: as noted, we believe that in the longer term palladium will settle into a range of 30% to 50% of the platinum price over the longer term. That does not mean an immediate boost to palladium as the metal is still busy shaking off the uncertainty created in past years by volatile stockpile sales which have discouraged autocatalyst producers from relying too much on the metal. While South Africa's increasing palladium content in new mines would seem to imply a negative impact on palladium, the security and stability of supply is likely to make the current huge $700 per ounce gap between palladium and platinum too tempting to autocatalyst producers. We expect to see palladium trading above $250 per ounce for most of 2006
4. Silver: We expect silver to display persistent price strength until a significant supply response is seen in 2006. We expect official sector sales, particularly from China, to continue to decline, as the People's Bank of China Bank runs down stockpiles accumulated in the 1980s. The photography sector will continue to be eroded. However, we expect the pace to be offset by conventional demand in China and India. We expect a modest decline in the silver price to an average of $6.65 in 2006
