Palladium’s sensitivity to the conflict pushed prices higher, while the rest of the precious metals saw a more delayed response to the war.
“Precious metals were the only major commodity group to not see a large price spike in the wake of the war in Ukraine,” the FocusEconomics 2023 CommodityOutlook reads. “Russia’s dominance in precious metals is less pronounced than in other commodities markets—with the exception of palladium, which did see a war-driven price surge.”
Palladium reverses previous surplus
Following the invasion of Ukraine (February 23), palladium prices rose to US$2,490 per ounce, a 31 percent jump from the start of the year.
Concern around an energy crisis, slowing global pandemic recovery and mounting inflation drove global markets into bear territory on March 8, 2022. The risk-off sentiment propelled the precious metals, with gold surging to US$2,053 per ounce, silver to US$26.36 per ounce, platinum US$1,152 per ounce and palladium US$3,184, all year-to-date highs.
In fact, palladium benefited from the convergence of several tailwinds in early March and rallied to an all-time high.
Since 2019, palladium prices have sat in historically high territory, marking several new all-time highs in that time period. The persistently high values have led to increased substitution of palladium in the auto sector.
As Wilma Swarts, director of platinum group metals (PGM) at Metals Focus explained, concerns that the war would lead to more substitution have yet to materialize.
“The substitution of palladium is more a factor of the high price than the Russian war,” Swarts told INN. “At this point, there are no sanctions on the use of Russian palladium.”
The director of PGMs went on to say, “While several companies have indicated their intention not to renew any offtake agreements, which could have some implications in 2023, we expect that the metal will continue to find its route to the market.”
Securing supply this year could be important after the palladium market swung back into deficit following a surplus in 2021. The shortfall stems from a decline in supply, as production continued to contract year-over-year.
Demand also weakened in 2022 amid declining output. In addition to a reduction in automotive demand, which comprises 80 percent of palladium end use, a global slowdown in consumer electronics also eroded the metal’s demand.
By the end of Q3 gold, silver and platinum had contracted significantly, registering year-to-date lows across the board. Palladium fell to its year-to-date low — US$1,667 — in December.
The metal grew slightly as the year drew to a close, ending 2022 at US$1,748.
Platinum facing supply challenges
Like palladium, platinum was also subject to supply challenges in 2022.
"I think a predominant trend (has) been on the supply side,” said Ed Sterck, director of research at the World Platinum Investment Council. “If we look at mine supply and recycling, both have struggled quite significantly in 2022, and those challenges are not going to disappear in 2023. They will continue.”
Most of the platinum market’s supply issues were the result of output disruptions in the top producing nation, South Africa. An ongoing electricity problem has impacted mining output in the country and reduced the 2022 global palladium guidance by half a million ounces.
“That's really because there's power supply challenges in South Africa,” Sterck said. “They have been continuing to have to load shed for different parts of the country. That effectively means that there's not enough power to go around.”
The issue only grew worse over the course of 2022 as load shedding grew by 140 percent in Q3 compared to Q2.
Platinum was able to reap some price upside as demand from the automotive sector increased by 25 percent year-over-year. The uptick came as auto manufactures moved away from palladium and towards platinum.
Sterck is also concerned about the ability of Russian platinum producers to secure mining equipment as many Western companies shun the country. This will result in Russian supply being flat year-on-year but could weigh heavily on the market if South Africa’s energy problems worsen.
“I think there's quite a high risk to Russian supply going forwards,” Sterck said. “The moment the sanctions are in place, the greater the risk that they'll run into some challenges.”
Platinum ended the year trading for US$1,045.
Silver demand hits new high in 2022
The silver price made a 4.5 percent gain during 2022 as demand for the white metal soared to 1.21 billion ounces for the first time. The segment saw a 16 percent year-over-year increase driven by a resurgence in industrial demand.
“Developments such as ongoing vehicle electrification (despite sluggish vehicle sales), growing adoption of 5G technologies and government commitments to green infrastructure will have industrial demand overcome macroeconomic headwinds and weaker consumer electronics demand,” a Silver Institute report notes.
The silver price topped out at US$26.36 in 2022; however, global inflation, rising interest rates and fears of recession pushed the white metal to a year-to-date low of US$17.88 in September.
“ETFs (in 2022) are forecast to see the largest annual decline in holdings totaling 110 million ounces, due in part to silver’s higher volatility than gold, which has made it more vulnerable to profit-taking,” the silver market overview stated. “Institutional investors are expected to retain a bearish stance as real yields are likely to strengthen, encouraging further distance from the white metal.”
Although some investors have liquidated their silver holdings, bar and coin demand jumped 18 percent year-on-year to 329 million ounces, a record high.
“Support has come from investor fears of high inflation, the Russia-Ukraine war, recessionary concerns, mistrust in government, and buying on price dips,” it reads. “The rise was boosted further by a (near-doubling) of Indian demand, a recovery from a slump last year, with investors often taking advantage of lower rupee prices.”
The broad-based demand increase kept the silver market in deficit throughout the year and is likely to continue in 2023.
The 194 million ounce shortfall represents a multi-decade high and four times the level seen in 2021.
Domestically, silver exploration saw an increase in 2022. The by-product metal, which saw lowered spending on exploring contracts over the pandemic, began to see a resurgence of discovery dollars.
“Exploration expenditure for silver, lead and zinc rose 50 percent year-on-year in the September quarter 2022,” the December Resource and Energy Quarterly states.
According to the report from the Office of the country’s Chief Economist, “(spending) slumped in 2020 — due to the COVID pandemic — but recovered as zinc prices rose over 2021 and 2022.”
Looking ahead, exploration expenditure is expected to moderate as zinc prices contract.
Silver ended the year at US$24.06, a dollar higher than its 2022 start value.
Australian gold exports grow
Aided by its hedge allure, gold posted a 5.7 percent gain for 2022, moving from US$1,811 (January 4) to US$1,915 on December 31.
As the risk adverse looked for safe haven, gold was especially impacted by a strong US dollar weighing on the metal’s ability to move past its year-to-date high of US$2,053.
While gold battled for growth in US dollars, the yellow metal made pronounced gains in other currencies. On March 11, the Australian gold price reached AU$2,730.20, a 19 month high.
“Gold is quoted in US dollars, but the reality is investors and consumers experience gold in their own currency,” Juan Carlos Artigas from the World Gold Council said.
The global head of research explained that the strong dollar and its correlation to gold was a tailwind in currencies around the world.
“In fact, it’s actually been a positive contributor to performance,” he told INN.
Gold’s Australian price positivity did not inhibit a growth in exports with national shipments anticipated to bring in AU$27 billion in 2022-2023.
“Australia’s gold exports increased by 23 percent year-on-year to AU$6.7 billion in the September quarter 2022,” the OCE resource quarterly reads. “The increase was driven by a 12 percent increase in export volumes, also supported by higher Australian dollar gold prices.”
The increased exports were supported by a 3.7 percent annual uptick in production.
For 2023, the gold sector is expected to register another 3.7 percent annual increase, bringing total output to 331 tonnes. However, there are factors outside the country that could prevent an output ramp up.
“The primary risk to the Australian gold production forecast is the extent to which supply chain issues and labor, or skill shortages persist in the short term,” the gold overview notes.
Additionally, weaker than forecasted gold prices present “further downside risk” to Australian gold production.
“Much weaker prices would see high-cost Australian producers cease or cut back their operations,” the report reads.
Despite gold trending higher in both US and Australian dollars since November, the economist’s office expects price volatility ahead amid the precarious economic conditions.
“The lower US dollar gold price is expected to drive the Australian dollar gold price lower from around AU$2,600 an ounce in 2022 to AU$2,200 an ounce in 2024.”
Gold ended 2022 priced at AU$2,700.
More broadly, FocusEconomics is forecasting a contraction across the precious metals suite during the first quarter.
“Prices are seen bottoming out in Q1 2023, in line with the peak of the global monetary tightening cycle,” the commodities outlook reads.
The market overview continued, “Precious metal prices should then see a slight recovery in the remainder of 2023 as interest rates ease, the US dollar weakens and vehicle output improves — both platinum and palladium are used in vehicles’ catalytic converters.”
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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
FIGURE 1: MONTCALM GABBRO COMPLEX GEOLOGY
FIGURE 2: COMPILATION MAP - MAGNETICS, HISTORIC DRILL HOLES & TARGET AREAS
