Precious Metals weekly – Turnaround in palladium?

by: Georgette Boele

140903-Precious-Metals-weekly.pdf ()
  • Higher US dollar and higher US interest rate expectations hurt precious metal prices
  • Turnaround in palladium sentiment but the outlook remains sensitive to Ukraine crisis

Turnaround in Palladium sentiment…

On 21 August palladium prices re-started a powerful ascent (+5%) and at the end of last week they cleared the previous high that was layered just above 900 USD per ounce. The picture looked extremely bullish, a strong uptrend (+22%) since February resulting in a new high not seen since 2001. This trend has been driven by the outlook of a larger supply shortage, because of fears of Russian supply disruption. Sentiment turned quite dramatically since the start of this week with prices dropping by more than 3%. Why did this happen? For starters, the US dollar rally has gained momentum and this is being felt in precious metals as well. Moreover, higher US Treasury yields have also added pressure on precious metals. For example 10y US yields have risen by more than 10bp since the US market is back from Labour Day holiday (2 September). Another example is that expectations for 3-months US interest rates for 2015 have risen modestly. Last but not least, the news that Putin and Poroshenko have agreed on steps for a Ukraine cease-fire has resulted in an improvement in market sentiment. This has put extra pressure on palladium prices because the supply deficit may be lower than expected.

PM weekly 3 sep 1

…but outlook remains sensitive Ukraine crisis

On previous occasions we had expected that weakness in palladium prices would gain traction. However, this script did not play out because of the market’s confidence in this precious metal and the Ukraine crisis. We continue to hold the view that a higher US dollar, expectations of higher US interest rates and easing tensions between Russia and Ukraine would push prices substantially lower. It is too early to call for the turnaround in prices at this point in time, because the situation in Ukraine remains rather fluid.

Higher USD and US rates hurt precious metal prices

Recently, precious metal prices have fallen under pressure. For example, since 10 July platinum prices have dropped by almost 7% and have approached our end of September forecast of 1,400 USD per ounce. The higher US dollar and higher US interest rates were the main reasons behind this. In addition, weaker eurozone data also hurt platinum prices. News that Putin and Poroshenko agreed on steps for a Ukraine cease-fire did not hurt gold prices. Why is this? This behaviour indicates that developments in Ukraine have not been a major driver for gold prices recently. Therefore, gold prices did not fall further after this news.

PM weekly 3 sep 2

pm weekly 3sep 3