LONDON (Commodity Online): Gold prices that rallied to $1,265 in June has since then failed to attain that levels and Natixis Commodity Markets expects potential for further weakness as some of the arguments for holding gold has become less relevant. This could push prices down to $950, Natixis said.

With the increase in supply and suppression of fabrication demand at current high prices, this requires a constant stream of investment inflows to balance the market.

Natixis Commodity Markets said thatarguments supporting investment are steadily being eroded. The sovereign debt problem is slowly becoming less of an issue, or is already priced into the market, and as such the need to hold gold as an alternative safe haven asset is being progressively reduced. Another bearish factor is producer de-hedging, which having averaged around 350 tonnes a year for the period 2006-09 is set to fall to trivial levels due to the much reduced scale of the outstanding hedge book.

For the Platinum Group Metals (PGMs), the auto sector, particularly in the developing economies, should support some modest gains in average annual prices for platinum and palladium.

In 2009, mined output rose by an estimated 6.5%, and we would expect this to rise further in 2010 and beyond. In combination with potential net selling from investors, higher mined output will lower the equilibrium price at which jewellery demand can balance the gold market.

“We forecast a slide in prices in the third quarter, perhaps accelerating in the fourth quarter, with the market at some point this year approaching the $1,050/oz mark to give an annual average of $1,125/oz. With gold’s negative fundamentals being deep-seated, further weakness in 2011 could take the average price down as far as $950,” Natixis said.

Silver prices will track gold, generating average of $17.75 per oz.A more bullish base metals market in 2011 is expected to give some support to industrial silver demand, justifying an average price only a little lower at $15.50 per oz, avoiding the more overt weakness likely in gold prices. As a result, the gold:silver ratio should narrow considerably to an annual average just over 61, taking it closer to its longer term average in the high fifties.

“We expect global automobile production to maintain its recent strong growth driven by the emerging markets, despite the end of the scrappage schemes in a number of the mature regions. With automobile growth being dominated by petrol-driven cars, and palladium continuing to make in-roads into the diesel sector, we continue to favour palladium over platinum from a demand perspective, ” Natixis Commodity Markets said.

The supply side, especially in South Africa, should offer some support with the potential for electricity supply bottlenecks, labour disputes and safety issues all to impact negatively upon the supply of platinum in particular. “We therefore project a rising trend in both pgms’ prices over the rest of this year.”

“Overall, we expect platinum prices to average $1,600/oz for 2010 as a whole, with the average palladium price at $465/oz. Next year, ongoing increases take our forecast for platinum to an average of $1,700/oz and palladium to $510/oz,” Natixis said.

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