The World Bank is looking for precious metals prices to pullback to averages
(Kitco News) - In the Word Banks' latest report, they have noted that its Precious Metals Index fell by 3 percent in the thirdquarter of 2021. It noted that this is due to declining investor sentimentstemming from higher real interest rates and a stronger U.S. dollar, as well aslower physical demand. Moving forward the projections are for the average priceto move back to the averages (5% higher) in 2022 on expectations of atightening of monetary policy. There are some upside risks to this outlook,these include the threat of new virus variants, amplified geopoliticaltensions, and more persistent inflation than anticipated.
The report noted that gold prices fell in part driven by a slumpin investment demand amid a rise in interest rate yields. The yield on 10-yearTreasury Inflation-Protected Securities (TIPS) increased by 10 basis points inSeptember and the U.S. dollar strengthened after the U.S. Federal Reservesignaled that it would begin to taper off its bond purchases before the end ofthe year. Holdings of gold-backed exchange-traded funds (ETFs) fell sharply inthe quarter, led by outflows from North American investors. Central banks havealso reduced gold purchases in recent months. On the other hand, firm jewelrydemand in China and India provided some reprieve to gold prices. Gold pricesare anticipated to average nearly 1.5 percent higher in 2021, before falling by2.5 percent in 2022, weighed down by higher yields.
When talking about Silver the bank said the drop was driven bysimilar factors as gold. There are early signs that industrial demand forsilver, which had been supportive of prices since the second half of 2020, hasstarted to wane. China's manufacturing PMI fell to below 50 in August andSeptember, indicating a contraction in industrial activity, while Japan's PMIreading has trended lower and well below the global average. China and Japanare major producers of products containing silver, such as electronics, solarpanels, and photographic equipment.
Lastly, on precious metals, platinum struggled due to weak demandfrom the auto sector. A shortage of semiconductors has caused a slump in globalauto production, and hence autocatalyst demand, which accounts for more than athird of platinum demand. Automobile manufacturers have warned that the globalsemiconductor chip shortage is likely to extend well into 2022. On the supplyside, South African mines have been operating normally after production washampered by pandemic-related
shutdowns and plant outages last year. The rebound in supplyalongside waning demand is likely to exert downward pressure on prices.Platinum prices are forecast to fall by 9 percent in 2022, following aprojected increase of 25 percent in 2021.
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