No End in Sight for PMs Rally

The gold bulls continued to run in 2010, pushing the precious metal to new highs and taking silver and platinum along, with commodity specialists seeing no end in sight to the rally.

Gold gained 25% in 2010, reaching a record $1,432.50/oz. Dec. 7. Analysts predict at least $1,500 for 2011. Silver is up about 75% to its highest levels since early 1980, while palladium has rocketed up 82%.

"It's been a fabulous year for commodities," BMO capital markets commodity strategist Bart Melek said.

The global economy is forecasted to grow 4% in 2011, fuelled by booming, emerging markets like China, Brazil and India. "What we have seen is the global commodity market recover extremely sharply, it was the sharpest recovery ever," Melek said. "There isn't the oversupply that we've seen in previous cycles so the moment demand recovered what we have seen is a tightening of the supply demand across the entire commodity universe."

As prices have risen, so has investor interest with ETPs gobbling up everything from palladium to gold and silver and putting further demands on tight supply.

BMO is forecasting a 380,000-ton shortfall for copper next year as demand outstrips supply. Copper hit a record high last month of $9,687/ton with Commerzbank analysts forecasting an average price of $9,500 in 2011.

Gold, palladium and platinum are also expected to continue their bull run as they are seen as a hedge against inflation and depreciating currencies.

Although there is no sign of inflation emerging at present in the struggling North American and European economies, investor concern is mounting about the longer-term impact of government stimulus measures on prices.

"Sovereign risk, especially in Europe, will keep people investing in the precious metal space, especially in gold and ETFs."