Precious metals weekly – Negative drivers dominate

door: Georgette Boele

140528-Precious-Metals-weekly.pdf (483 KB)
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• The easing of India import restrictions did not boost gold prices…
• …while other drivers turned more negative for gold
• Investor positioning in platinum and palladium remain heavy

India easing gold import restriction?

Last Thursday, the Reserve Bank of India (RBI) announced an easing of import gold restrictions. As a result, more institutions are allowed to import gold under the current rules that require importers to supply 20% of bullion to jewellers for export. In addition, the RBI also eased some financing rules allowing banks to provide gold metal loans to jewellers. We think that it is unlikely that the new government will change the rule that gold imports are linked to re-exports. This is because a further improvement of the current account deficit will remain a key priority in our view. Did gold prices react positively on the news? Gold received some support on the news, but the momentum faded quickly afterwards. So, to sum up India slightly eased gold import restrictions, but gold prices did not rally.

Weekly 28 May

Other drivers turn more negative for gold

The upward momentum in gold prices faded at the end of last week and at the start of this week. This was reflected by a very muted response on the easing of India import gold restrictions announced last Thursday (see above). In addition, the election outcome in Ukraine over the weekend eased (geo) political fears resulting in a deteriorating sentiment on gold. Gold prices also came under pressure on the news that China’s gold imports from Hong Kong fell, signaling lower Chinese investment demand for gold. More importantly, the stronger-than-expected US data have made gold an even less attractive asset to invest in. As a result, gold prices dropped by more than 2% this week.

How did the other precious metals perform?

With the exception of palladium, the other prices metals have also come under pressure this week, with silver prices closely tracking gold prices. Despite the ongoing strikes at mining companies in South Africa, platinum prices moved lower as well. This is because the negative sentiment in the gold market spilled over to platinum prices. The government in South Africa tries to have a more active role in ending the strikes. The new mining minister met with the Association of Mineworkers and Construction Union that called the strike. Today the new minister is meeting with the large South African platinum mining companies. Palladium prices were well supported, because of positive economic data from one of its main markets, the US, and the market being in a position of undersupply. To conclude, other precious metals outperformed gold, but only palladium had a positive performance compared to the US dollar.

Investor positioning

Investors hold a mixed view towards precious metals. In general, they are pessimistic about gold and silver and optimistic on platinum and palladium. Their positions reflect these views. For example, net speculative positions and ETF positions in gold and silver have been reduced. On the one hand, ETF positions in gold have fallen. On the other hand speculative short positions in silver have risen substantially, having a negative impact on the overall net-positioning. If we turn to platinum and palladium, total ETF positions remain very substantial, so are the net long positions in the futures market. This position overhang remains a key risk to prices in our view.

weekly 28 May 2