Precious Metals Monthly – Guess what…still bearish

by: Georgette Boele

130930-Precious-Metals-Monthly.pdf ()

Outlook for gold: Seven reasons to expect lower gold prices

We see seven good reasons to expect lower gold prices for 2013-2015. In our view, the Fed’s decision to refrain from tapering asset purchases is only delayed for a few months. We expect the scaling back of stimulus to happen this year at the December meeting. A reduction in monetary stimulus is one reason why we expect higher interest rates for 2013-2014. This will reduce the attractiveness of gold as a zero-income asset. Inflation pressures in the developed world should remain subdued, reducing demand for gold as an inflation-hedge. We expect the US recovery to accelerate, decreasing the attractiveness of gold. A subsequent improvement in investor sentiment will reduce demand for gold as a safe-haven asset. Moreover, a higher US dollar will automatically make gold less attractive. Investors are using every rally in gold prices as an opportunity to sell. The reaction to the rally after the Fed decision was no different. Physical demand from India will likely be discouraged by the increases in gold import duties and other measures that aim to reduce the current account deficit.

Outlook Silver, Platinum & Palladium: We remain bearish this year

For this year, we expect more weakness in silver, platinum and palladium prices, but we see a recovery next year. Silver and platinum are closely tracking gold, and our outlook for gold is bearish. Silver demand from India as a substitute for gold will likely only be temporary. Silver is in oversupply, with a well-diversified mine supply decreasing the likelihood of supply disruptions. Silver and platinum first need to reduce investor positions this year to disconnect from gold prices next year. Investor positions in palladium are substantial as well and a serious risk for the price outlook. Undersupply in platinum and palladium is already reflected in the price. Moreover, platinum prices mostly reflect the more constructive demand outlook for autocatalysts from the eurozone and Japan. In the case of palladium, investors are so bullish that they are ignoring the negative news. Auto-catalyst demand outlook for palladium is mixed.