Precious Metals Monthly – Weakness to continue

by: Georgette Boele

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Weak investment fundamentals to push gold prices lower in 2015 and 2016

The investment fundamentals for gold are weak. The US dollar is in a multi-year ascent and US interest rates will move higher and not lower. This combined with constructive investor sentiment is a major negative for gold prices, because investors will sell the gold positions they hold as an investment. Currently, financial markets continue to underestimate Fed rates hikes this year and next year in our view. Therefore, an upward adjustment in US interest rate expectations could have a dramatic negative impact on gold prices. However, for 2015 and 2016 we expect a pick-up in jewellery demand from India and China. If we take both the investor demand and the jewellery demand into account, we continue to expect a sharp drop in gold prices in 2015 and 2016. This is because investor selling will have a more dominant negative price impact than the increase in jewellery demand in our view. We have kept our gold price forecast unchanged with our 2015 and 2016 year-end targets of USD 1,000 and 800 respectively.

Also weakness in cyclical precious metal prices in coming months…

Investors are also still heavily positioned in silver, platinum and palladium. Some adjustment has taken place over the recent months, but total outstanding positions are still substantial. A higher US dollar and an upward adjustment in US interest rate expectations will also likely trigger investor selling of platinum, palladium and silver as investment asset.  But at some point in the coming months economic fundamentals will come to the rescue and support these prices in contrast to gold. This will especially be the case for platinum. Platinum prices have fallen quite substantially since 2014, while fundamentals have improved and will continue to improve going forward in our view. We expect stronger platinum demand for autocatalysts, for industrial uses and for jewellery. This is mainly the result of stronger economic growth in the eurozone and the US and no hard landing in China (jewellery demand). However, a condition for the recovery is that ETF positions are reduced.

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