Demand for precious metals softens as higher prices dominate: survey

Strong pre-season demand for gold and silver during September and October dissipated throughout November as higher prices once again threatened to push physical buyers to the sidelines, according a survey released today by ScotiaMocatta, the precious metals division of Scotiabank.

The impact of higher prices has not been as dramatic as previous rallies however with market players adjusting their price expectations upwards, and underlying seasonal demand ensuring steady support on price dips.

With Christmas accounting for upwards of 50% of annual sales in the Italian jewelry sector, the fourth quarter is traditionally the busiest of the year for manufacturers and wholesalers. “While producers of designer jewelry, which combines innovative design and excellent quality, have reported modest signs of recovery over recent months, the overall Italian jewelry market remains on a downward trend – overshadowed by cheaper competitors such as Turkey and India,” said Bernard Hunter, Director, Sales, ScotiaMocatta. By contrast to the predominantly consuming countries of the Far and Middle East, weakness in the U.S. dollar has made exports to the key U.S. market more expensive, putting further pressure on margins and competitiveness.

The prospects for gold and silver physical demand over the next three months remain negatively correlated to price swings over the same period. “We expect a modest upward bias in demand as buyers continue to adjust their price expectations upwards in line with the market, and as a result we expect to see fewer periods of stop-loss panic buying which was a feature of the market this time last year,” said Hunter. Across all regions both metals should attract steady scale down buying support as seasonal factors continue to influence sentiment.

Both gold and silver survived tests of support during September and early October to rally strongly into the final month of the year – gold prices have gained close to 15% in an eight week period from early October to early December, while silver has added over 30% over the same period.

The ScotiaMocatta client sentiment survey was conducted during the period November 21 to December 5 2006 among a cross-section of ScotiaMocatta’s clients worldwide. Survey participants were asked to forecast prices for gold and silver three months from the date of the survey and 12-months from the date of the survey.