Precious Metals weekly – Weakness to continue

door: Georgette Boele

140604-Precious-Metals-weekly.pdf (474 KB)
  • Platinum prices under pressure
  • Palladium resilient,…but for how low?
  • Gold weakness to continue

Platinum prices under pressure

Platinum has been the worst-performing precious metal so far this week, losing more than 2%. The reasons behind its performance are as follows. For starters, in South Africa the Association of Mineworkers and Construction Union (AMCU) met with the Minister of Mineral resources this week. Both were upbeat about progress made during the talks to end the strikes. This has fuelled market expectations that the strikes may end soon. More importantly, eurozone economic data have come in below expectations. As a result, the market has adjusted its view downwards about eurozone platinum demand. Last but not least, weakness in gold and silver prices last week has hurt the overall market sentiment on precious metals. The sentiment in the platinum market has changed with more price weakness on the cards in our view. It is likely that the deterioration in the price outlook will result in investors closing more platinum long positions. This will even reinforce the move. To conclude, platinum prices have come under pressure and weakness will probably persist going forward.

graph Weekly 4 June

Palladium resilient,… but for how low?

In contrast, palladium prices have only come under modest pressure. Important markets for palladium demand have done relatively well. For example, economic data from the US signal an acceleration in growth, while worries about the Chinese economy have abated. Moreover, constructive investor sentiment has continued to support the outlook for palladium. This has manifested itself in a substantial negative correlation between the VIX and palladium, while, palladium continues to have a strong positive correlation with equity markets. Investors continue to hold an optimistic view because of a well-anticipated supply shortage. However, the price momentum is fading, because supply concerns seem to have eased somewhat. The probability has risen that the strikes at mining companies in South Africa may come to an end soon. In addition, fears of sanctions limiting Russian palladium exports have eased. If these developments continue, investors could take profit on their substantial long positions, pushing prices much lower. So palladium prices have been resilient, but we expect prices to become more vulnerable going forward.

Gold weakness to continue

Gold prices have dropped below our end of June forecast of USD 1,250 per ounce. This was mainly because of an improvement in investor sentiment following the stronger US economic data and the easing tensions in Ukraine. In general, an improvement in sentiment results in lower demand for gold as safe-haven asset. Moreover, higher 10-y US Treasury yields have also added pressure on gold prices. If this Friday the US employment report surprises on the upside and triggers an adjustment in the market’s view of interest rate increases by the Fed in 2015, then the US dollar will rally and gold prices will drop in our view. Recently, investors have increased short positions in both gold and silver. This reflects that the overall sentiment in these precious metals has deteriorated. All-in-all we remain negative on gold prices this and next year, because we foresee an acceleration of the US economy, a higher US dollar, higher US yields and constructive investor sentiment.

Weekly 4 June 2