Precious Metals weekly – Catching up

by: Georgette Boele

  • Strong performance precious metals year-to-date (YTD)
  • Gold has outperformed so far …
  • …but platinum and palladium are catching up
  • …and the momentum in the gold rally is fading

140306 – Precious Metals weekly

How did precious metals perform YTD?

Since the start of the year gold has outperformed other precious metals by about 2-3%, followed by silver and then the more cyclically driven precious metals platinum and palladium. Gold prices have moved higher because of safe-haven demand due to worries about emerging market economies, Ukraine in particular. Moreover, gold has received support from strong Asian interest, a lower US dollar, weaker US data and lower US yields. The other precious metals profited from gold’s strong rally, but underperformed gold because of concerns about the strength of the US economy, following the weaker US data and a deterioration in investor sentiment.

PM weekly 6 March

Palladium and platinum prices catching up?

The dynamics for platinum and palladium prices have improved recently. Since 23 January more than 70,000 members of Association of Mineworkers and Construction Union have been on strike at the three largest platinum mining companies. So far around 6% of the annual platinum production has been lost. The mining companies have mainly reduced stocks to compensate for the loss in production. Therefore, up to recently the strikes had limited impact on prices, also because they were driven by the above-mentioned drivers. On 5 March, the Commission for Conciliation, Mediation and Arbitration (CCMA) has suspended the facilitated negotiations between the three largest miners and the Association of Mineworkers and Construction Union (AMCU), because the positions of the parties were too far apart. The strikes are unlikely to end soon. Expectations that lower supply will impact prices eventually have supported prices recently. Moreover, the latest economic data in the US and eurozone have improved, also supporting the prices. Furthermore, the overall improvement in sentiment helped as well. Palladium prices have broken above previous highs and they may test the USD 800 per ounce level in the near term. Platinum prices have surged to a new high since September 2013. They may move towards USD 1,550 per ounce before falling back if strikes continue and gold prices fail to be sold off aggressively. As a result, our expected price weakness because of investor liquidation will likely take more time to materialize.

Our outlook for gold

The rally in gold prices has lost momentum, but prices remain relatively well supported as long as uncertainty surrounding the Ukraine lingers on. If the situation calms further and US data start to improve in line with our forecasts, US dollar and US yields will likely move higher. Therefore, gold prices could easily be pushed below USD 1,300 per ounce again. Expectations for the US employment report have been adjusted downwards following weaker employment indicators this week. If there is no downside surprise in this US employment report, the downward pressure on gold prices will likely build. However, another negative surprise in the US employment report will likely push gold prices above USD 1,350 per ounce.

PM Weekly table 6 March