Many of the factors that have supported the bull market for the precious metals remain in place. Inflationary pressures associated in part with the dramatic rise in commodity prices are continuing. Uncertainty in the financial markets as the sub-prime crisis continues to unravel remains an issue. The other key supporting factor is the increasing acceptance of commodities as an asset class. However these positive fundamentals do not necessarily justify a straight progression for precious metals prices.

Natixis Commodity Markets believes that the key trend will be the ability of the individual precious metals to hang onto their bull market gains. In this regard, we slightly favour the platinum group metals with their relatively tight fundamentals, rather than gold and silver, which require continued buying from the investment community to support high prices. We are forecasting an average annual price of $875 per oz for gold and $16.50 per oz for silver, which implies slightly weaker prices as the year progresses.

Going forward, we believe that the investment case for gold will remain strong throughout the rest of this year and, potentially, into 2009. However this may not lead to new highs in the gold market. Despite the efforts of monetary authorities around the world to contain the impact of the sub-prime crisis on both financial markets and the global economy, their outlook remains questionable. In addition, high commodity prices seem to persist, despite expectations of a slow-down looming ahead.

The correction (at the time of writing) in the gold price below the $900 mark was well anticipated and, in our opinion, is proving to be necessary for the market to gain some breathing space. Given the seasonal lull that the gold investment market often experiences during the middle months of the year, it is possible that a rally will not occur until the autumn. The signs that the dollar has bottomed have pressurised prices in recent weeks and this feature may continue to put a cap on rallies. We are forecasting an average annual price of $875 per oz for gold in 2008, which suggests that we may have already seen the peak for the year, when prices briefly exceeded $1,000 per oz.

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