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Gold drivers to expand in 2020, US election to come to fore: Polymetal

Highlights

Silver price to rise

Silver supply deficit to increase

The 2020 US presidential election could replace the US-China relationship as the factor defining the gold price while a growing silver deficit will lift the metal's price along with its investor appeal, according to the CEO of Polymetal.

The trade conflict between China and the US is still decisive for the price of gold, but how this confrontation will evolve is difficult to predict and hence future gold dynamics are unclear, Vitaly Nesis told S&P Global Platts in an interview Thursday.

The ongoing tensions weakened the US economy and prompted the country's Federal Reserve to loosen its monetary policy, according to the top executive at the gold, silver and copper producer.

In early 2019, the expectations were that the US central bank may undertake two interest rate increases by the end of the year, but instead it cut rates in July and September. And low interest rates are always good for gold, he said.

Gold is currently trading at around $1,500/oz, compared with $1,290/oz in early 2019.

The interest rate cuts have a bearing on returns on Treasury bills and bonds. When these fall, investors often turn to gold.

"Should the US and China sink the feud, the trend will reverse. The most recent signals on that matter are positive, but too weak to expect a dramatic change in the relationship between the two countries. And the gold price responded only modestly. Until we see a bigger shift in the negotiations, the price is likely to hover within the same range," said Nesis, whose company has assets in Russia and Kazakhstan.

But starting from mid-2020, another factor - the run-up to the US presidential election in November 2020 - is likely to take center stage, as the impact of the US-China standoff may have worn off by that point, the executive said.

"We are talking the market response to the Democratic Party's candidate and his/her potential election," said Nesis.

There are candidates whose plans would widen the scope of the state's influence and soften monetary policy he said, adding that such a candidate would be positive for the price of gold.

SILVER IS THE NEXT GOLD

Speaking of silver, Polymetal's second major commodity, Nesis said 2019 is set to become the fourth consecutive year in which global supply has declined despite steadily growing demand for the metal.

Silver supply is in decline as resources are depleting at major producers, particularly in Latin America, and yet very few new projects are coming online, said Nesis, adding that Polymet is not an exception.

"Unfortunately, our company is part of the global trend. Our silver reserves are also running down while the current new projects are gold-related," said Nesis. The state of things will make silver rather appealing when the time comes to consider further investment options in late 2021-22, he said.

Big, quality silver assets are few in number around the globe and the prospects look good for silver, he added.

"The growing silver deficit makes me very optimistic about the price. I bet it will go up and, especially in relation to gold, and that the gold-silver ratio will shrink. I believe the silver price will increase to $20/oz and I hope it will make it to $25/oz at some point next year, up from $17.50/oz currently," said Nesis.

The electronics and the solar sectors are the two key silver end-users.

Demand from the electronics sector is growing slower than the global GDP because of the so-called thrifting phenomenon when for instance, each new TV contains less silver due to improved technologies and metal utilization. It is mainly explosive growth in the production of solar energy that drives global silver consumption.

Polymetal sells most of its gold to Russian banks and more recently to the National Bank of Kazakhstan, with occasional supplies going to China. Most of its silver output is exported.

-- Ekaterina Bouckley, katya.bouckley@spglobal.com

-- Edited by Keiron Greenhalgh, newsdesk@spglobal.com