Raw Materials, Time to Hedge

2022 opens with a note of caution. The macroeconomic situation, coupled with developments in the epidemiological situation and the likely rise in US interest rates, are leading both institutional and non-institutional investors to evaluate various scenarios. The commodities sector is no exception. According to the latest quarterly report issued by Intesa Sanpaolo, the negative impact of the Omicron variant and the threat of more restrictive monetary policies are the main obstacles for the commodities markets and could trigger broader price corrections in the short term. Nevertheless, a temporary weakening of commodity prices would benefit the global economy by helping to accelerate growth rates and would also simplify the task of the major central banks, which could then continue to support the economic recovery instead of fighting inflationary pressures. And if this is true in general, in detail, the precious materials segment will show different trends with gold and silver in decline as opposed to a recovery in palladium and platinum. From an investment perspective, it is therefore worth favoring palladium over gold. For companies in the gold sector, the drop in gold and silver prices could offer the chance to implement hedging or hedging policies. «Obviously these initiatives must be consistent with company policies,» explains Daniela Corsini, CFA, Senior Economist, Rates, FX & Commodities Research at Intesa Sanpaolo. «However, the dynamics of gold prices, which, although still significantly high, have been falling, should not be underestimated. According to our analyses, the average price of an ounce will be around 1,720 USD this year, falling to 1,650 USD in 2023. The most important factor influencing forecasts is the hypothesis of interest rate rises in the USA and Europe, even if macroeconomic uncertainties will confirm, albeit to a lesser extent, the role of gold as a safe haven asset par excellence, for which demand in emerging countries, China and India in particular, is always significant. Just by way of example, in the last year and a half, due to the spread of Covid-19, numerous wedding ceremonies were postponed in India. But in the 30 days between mid-November and mid-December 2021 alone, 2.5 million weddings were celebrated, a quarter of the average annual total, and this led to a considerable demand for gold.» Not only that, if gold becomes more attractive, palladium and platinum are candidates for best performers after months affected by the crisis in the automotive sector. «All the signs are there for platinum and palladium to regain strength in 2022,» Corsini continues. «The first sign is the improvement in the availability of semiconductors, which absorb 85% of palladium demand. Therefore, within a medium-term strategic asset allocation, palladium offers more opportunities than any other precious metal.»

«However, the dynamics of gold prices, which, although still significantly high, have been falling, should not be underestimated. According to our analyses, the average price of an ounce will be around 1,720 USD this year, falling to 1,650 USD in 2023»