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This blog discusses The Perth Mint's bullion coins and bars, providing information about our latest designs, mintages, sales volumes and sell outs. On a broader front, we share relevant research and opinions for anyone interested in gold and silver bullion investing.

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2017 LBMA Precious Metals Forecast Survey reveal analysts are bullish

Topics [ gold prices silver prices ]

Thirty analysts representing twenty six different companies participated in the London Bullion Market’s latest annual Precious Metal Forecast competition.

Contributors were bullish across the board for the four key investment metals, with analysts forecasting that the average gold price in 2017 will be 5.3% higher than the average price in the first half of January 2017.

They were slightly more bullish about the prospects for silver prices, with an increase of 7.1%, but less bullish about PGM prices. For platinum, they forecast an increase of 4.9%, but expected a more modest outlook for palladium, with a forecast increase of just 2.4%.

The full 2017 LBMA Precious Metals Forecast Survey, including each analysts’ supporting commentary, can be downloaded here: www.lbma.org.uk/assets/Forecast_2017_Interactive.pdf



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LBMA 2016 Forecasters Predict Precious Metal Price Increases

Topics [ gold prices platinum prices buy silver bullion online silver prices buy gold bullion online ]

RESEARCH AND ANALYSIS

At the beginning of each year the London Bullion Market Association (LBMA) polls a range of respected precious metals analysts in the large banks and independent consultancies for their forecasts for metal prices for the coming year. This year contributors are “predicting price increases across the board for all four metals”.

Their forecasts for the average price during 2016 are:

 • Gold – $1,103, ranging from $978 to $1,231

 • Silver – $14.74, ranging from $12.63 to $16.78

 • Platinum – $911, ranging from $748 to $1,076

 • Palladium – $568, ranging from $413 to $674

LBMA forecasts have been quite accurate historically.

This year the range of forecasts for gold is quite tight, indicating more consensus or confidence amongst the analysts about gold. The most pessimistic analyst is René Hochreiter who forecasts a low for gold during the year of $850 while Martin Murenbeeld sees a high of $1,375.

The LBMA analysts are less accurate in the case of silver. This year their range is wider but overall see a downtrend. Bernard Dahdah sees a low for silver of $11.00 with Philip Newman seeing silver getting as high as $19.50 during 2016.

Click here to download the LMBA Forecast 2016.



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China To Support Silver Market In 2015

Topics [ silver investing silver prices silver market ]

RESEARCH AND ANALYSIS

If you mention China, most people think of gold. However, China is also a big consumer of silver, net importing between 5% to 10% of global annual supply of 30,000 tonnes. A recent note by David Jollie of Mitsui Global Precious Metals focusing on the Chinese silver market concludes that it will provide support to the silver price in the short to medium term.

While net imports of refined silver into China peaked in 2010 at 3,475 tonnes, David’s analysis of other public and in-house data shows that China’s total silver demand actually peaked at 6,270 tonnes in 2013, with 2014’s figures only declining by 1.9%. For 2015, he expects imports of silver to rise sharply on the back of stable local mine production, low exchange stocks and 7% GDP growth driving positive growth in the solar, automotive and electronics sectors.

In addition, David believes that investor interest in silver that drove the price to its highs in 2011 has mostly been eliminated, based on an intriguing comparative analysis of silver and indium (which share similar mining and end-use market structures).

This means “that there is scope for silver to regain some of its [investor] premium. If gold rallies further, international investors can be expected to send silver higher”. Furthermore, David thinks that commodity financing deals using silver will return, resulting in further demand for silver out of China.



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Are Analysts Overly Pessimistic About Gold And Silver in 2015?

Topics [ gold prices silver prices ]

RESEARCH AND ANALYSIS

Following on from Thursday’s post on the LBMA Forecast Survey, below we look at how accurate the bullion market analysts as a group have been, as we did last year. Generally they are quite accurate when you take the range of their forecasts into consideration, with only two years where the actual yearly average was outside the forecasted range.

This year there is less consensus than 2014 on both the gold and silver outlook. The range between highest and lowest forecast is much wider for both metals, indicating a diversity of views and portending a volatile year ahead. The gold forecast sees little change in the yearly average with the most pessimistic seeing a low of $880. The most optimistic only sees a high of $1525, which I think will disappoint most gold investors after the last couple of years’ worth of declining prices.

Whereas gold’s lows and highs are evenly spread around the average, for silver the LBMA forecast tends to the pessimistic compared to 2014’s performance, with the yearly average forecast or $16.76, the lowest low forecast being seen at $10 and the most optimistic at $22.

So on average for the year the analysts see gold flat and silver as underperforming. While this is not encouraging for investors, they can take heart from 2013 where the analysts as a group were overly optimisic – maybe 2015 is where they are overly pessimistic and the monetary metals outperform to the upside.



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LBMA Announces Precious Metals Forecast Winners

Topics [ gold prices silver prices spot price ]

IN THE NEWS

The London Bullion Market Association has announced the winners of its 2014 Precious Metals Forecast.

The aim of the LBMA Forecast is to predict the average, high and low price for gold, silver, platinum and palladium over the year ahead. The prediction closest to the average price wins (based on the average $ daily pm fixing price).

 

Frederic Panizzutti of MKS (Switzerland) SA took first prize for gold with a winning forecast of $1,262 against an actual average for the year of $1,267.

In silver, Rhona O’Connell (Thomson Reuters) and Suki Cooper (Barclays) shared the honours with a forecast of $19.00 against an actual average price for the year of $19.08.

Full details of the winners can be found on the LBMA website.

ASSOCIATED STORY: How Accurate Is The LBMA Precious Metals Forecast Survey?



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How Are Spot Prices Determined?

Topics [ gold prices buy silver bullion online silver prices buy gold bullion online ]

EDUCATION

There are two key markets in which the prices of gold and silver are determined.

1. Over-the-Counter (OTC)

The OTC market consists of traders dealing with other traders on a one-on-one basis. It operates much like the internet – it is just a network of traders independently dealing with each other 24 hours a day. OTC is generally meant to refer to professional/corporate entities trading 400oz gold bars (and 1000oz silver bars), usually for settlement in London. However, when you buy a coin from a bullion dealer, you are also doing an OTC deal.

OTC trading is done on the telephone or via a dealer's proprietary trading platform software. Just like your transaction with a coin dealer, the amount dealt and the spot price agreed is not public.

To facilitate price discovery in what is an otherwise opaque market, precious metal dealers often use a service like Reuters or Bloomberg as an indicator of where the spot price is. This spot price is updated by the bullion desks of the big banks and is, in effect, a bulletin board or forum where these banks can publish their prices. However, unlike a stock market, it is not a commitment to deal at those prices (but generally one can).

It is therefore hard to "pin down" the OTC spot price, compared to a public exchange.

2. Futures Exchanges

Futures markets are public, regulated exchanges where the price for delivery of gold or silver at various dates into the future is traded. The largest and most influential market is the US COMEX market.

Often the current (or nearest) future prices quoted as a spot price of physical gold. Technically this is not correct as it is a price for gold or silver to settle in the future whereas the "spot price" is the price for immediate settlement. However, in countries with futures exchanges dealers often base their price for immediate delivery of gold or silver off their local futures market, so from a retail customer's point of view a futures prices is effectively the spot price.

It is important to note that futures and spot prices are related to each other and as such are kept in alignment by arbitrage traders who look at the relative costs of borrowing cash and gold (and other factors) and will sell futures and buy OTC spot (or vice versa) if they see too much divergence between the prices.

There has been some debate as to whether US futures markets or the London OTC spot markets drive the price. This analysis concludes that it is not fixed and changes over time, even though the London OTC market is much larger than COMEX in terms of ounces traded.

A Bullion Dealer's Spot Price

So how do bullion dealers selling to customers set their spot price? They do so by considering the following factors:

The spot/futures price may change in the time between committing to a price with their customer and executing a deal with their OTC counterparty or futures market broker.

OTC and futures markets are wholesale markets (trading in "lots" of 1,000oz and 100oz of gold, respectively) whereas a dealer's retail customers will be buying in much smaller amounts. This means it may take some time before they have accumulated enough ounces to execute a deal, during which the OTC/futures price will change.

The dealer may not be quoted the Reuters or Bloomberg screen price when trying to lock in a price in the OTC market, especially when the market is moving quickly and bullion banks are not updating their prices into those information services quickly enough.

For futures trading, the dealer will be charged brokerage fees. For both futures and OTC trading there is also general costs of employing dealers and settling trades.

The way bullion dealers manage the above factors is to add a margin (or buffer) to the spot or futures price they see quoted. How much they add and how often they will change their spot prices depends on how volatile the wholesale price is and how much buying or selling their clients are doing. This changes dynamically during the day and will also vary between each bullion dealer. Note that this spot price margin is in addition to any fabrication premium.

The result is that you will find each bullion dealer quoting different spot prices. This can be confusing to first time investors who are used to, for example, a single price for a company's stock on a single exchange. It often leads to questions about whether they are being quoted a "fair" price.

The only way to know if you are getting a fair price is to do what bullion dealers themselves have to do, which is to shop around and see who is offering the best price at that time and take it. In doing so, you become part of the huge, opaque precious metal market “network” of over-the-counter traders. Good luck!



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