Precious Metals Weekly – US data risk

door: Georgette Boele

Precious-Metals-weekly - 23 April 2015 - US data risk.pdf (222 KB)
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  • Lower precious metal prices…
  • … and higher US numbers could accelerate the move
  • Gold prices outperformed cyclical precious metal prices

Lower precious metal prices…

Over the past week, precious metal prices have fallen modestly, by between 1.0% and 3.5% (see graph on the right). They have reacted negatively to the 5bp rise in 3M US December interest rate future and a 10bp increase in 10y US Treasury yields since last week. Next week, crucial US events are on the agenda, such as the publication of Q1 GDP and the PCE deflator and the FOMC meeting. Higher US growth, PCE inflation and/or less dovish Fed statement could result in an upward adjustment in US rate hike expectations, which would weigh on precious metal prices. Then, a revisit of this year’s lows is on the cards.

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…but cyclical precious metals underperformed gold

Cyclical precious metal prices (platinum, palladium and silver) have underperformed gold prices. Why is this? There could be four possible explanations. First, the continuation of the Greek saga could have modestly supported gold prices, because of it being characterized as a safe haven asset. Despite the unhelpful comments from officials, financial markets seem to be relaxed. So this is at odds with gold prices outperforming the cyclical precious metals.

Second, weaker-than-expected economic data from China and the eurozone have dented the demand outlook for these cyclical precious metals. China and the eurozone are crucial markets for platinum and palladium demand. Third, investor positions in platinum and palladium are the most significant, especially total ETF positions. Therefore, they are also more vulnerable to investor liquidation.

Fourth, gold demand from Asia is picking up, protecting the downside in gold prices. The latest Swiss Federal Customs data show that Swiss exports to China have doubled to 46.4 metric tons in March and to India more than doubled to 72.5 tons. This year, we expect a pick-up in gold demand from India and China. However, in our view, investor liquidation of gold positions will be more substantial than an increase in Chinese and Indian gold demand. Therefore, we continue to expect lower gold prices this year and next year.

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