Precious Metals Weekly – Lower prices on the cards

by: Georgette Boele

140129-Precious-Metals-weekly.pdf ()
  • Deterioration in emerging markets sentiment supported gold, but not other precious metals
  • We continue to prefer to position for lower gold prices
  • Tomorrow we will release our new Quarterly Commodity Outlook

Did recent weakness in emerging market currencies spill over to gold?

Since the start of last week, sentiment in emerging markets deteriorated driven by the political situation in the Ukraine, the challenges in Turkey and the devaluation of the Argentina peso. This resulted in a sharp drop in emerging market currencies. In addition equity markets moved lower, equity volatility moved higher, safe haven bonds and safe haven currencies were supported and gold prices also rose. This was a classical risk aversion wave. However, when emerging markets came into calmer waters mainly because central banks took action, gold prices fell under pressure again.


How did other precious metals perform?

When equity volatility started to rise on 20 January, silver, platinum and palladium moved lower by less than 1%. In fact gold prices were the only prices that were supported in this classic risk aversion move. However, the improvement in investor sentiment since the start of this week did not support precious metal prices. They have moved between 2.0 to 3.3% lower. This is somewhat surprising and reflects the impact of weaker than expected US data


What do we expect going forward in gold prices?

We believe that the recent rally in gold prices is running out of steam and that the current spot levels are an opportunity to position for lower prices going forward. Not only do we expect sentiment on financial markets to further improve, reducing demand for classical safe haven assets such as gold, we also expect other investments to outperform gold on income elements and on capital gains.

Tomorrow we will release our new Quarterly Commodity Outlook