Precious Metals Update

Dim outlook for the silver price

We think that weaker physical demand, higher real US Treasury yields and a stronger dollar will mean that the recent poor performance of the silver price is set to continue over the next couple of years.

7 October 2021

Commodities Economics Chart Book

Gas & coal surge to support other commodity prices

Natural gas and coal prices soared in September. In turn, this has raised the output costs of industrial metals, most notably those which are especially energy intensive such as aluminium and steel. At the same time, reports suggest that some electricity providers are starting to substitute natural gas and coal for oil. While we expect natural gas and coal prices to ease back from here, they are likely to remain high by past standards well into next year. Nevertheless, we doubt this will be enough to prevent industrial metals prices from edging lower in tandem with weaker economic growth in China.

5 October 2021

Commodities Update

China’s power shortage curbs metal supply & demand

China’s manufacturing PMIs for September diverged, but both still point to subdued commodities demand. What’s more, the surveys were conducted before power shortages started to constrain activity. Weaker industrial activity should put downward pressure on most commodity prices but, in the case of some metals, it could also lead to lower supply. In view of the wider interest, we are also sending this Commodities Update to clients of our Metals service.

30 September 2021

Our view

Slower economic growth in China, the world’s largest metals consumer, is driving our view that industrial metal prices will decline as we move into 2022. What’s more, we expect growth in China’s metals-intensive construction sector to slow particularly sharply as the government is actively seeking to curb credit to the sector. On the supply side, the power shortage and subsequent power rationing in China has bolstered the prices of some metals, notably aluminium, on the back of fears of supply shortages. For now, we think these fears are overblown, but it does represent an upside risk to our near-term price forecasts. Meanwhile, we expect the prices of most precious metals to fall in 2022-23 as rising real yields in the US weigh on investment demand.

Latest Outlook

Metals Outlook

At the start of a downswing in prices

Although the prices of industrial metals have picked up again recently, we still expect them to be falling over the next year or so. Underpinning this view are our forecasts for economic growth to slow in China, a continued rebound in supply from major producers, and a stronger US dollar. Meanwhile, we also think that most precious metals prices will decline, primarily because we expect US real yields to rise and weigh on investment demand.

4 August 2021