- Precious metal prices are strongly sensitive to USD and US rates…
- …investor liquidation of net long palladium positions has only just started
Review of Q1
The first quarter of 2015 ended and we review what happened in Q1. Gold, silver and platinum prices performed well in the first weeks of this year. In contrast to last year, their rallies did not extend further because the US dollar and US 10y Treasury yields started to rise. In February and first half of March, gold, platinum and silver prices weakened sharply mainly driven by stronger US dollar and higher US 10y Treasury yields. As a result, prices of these precious metal prices broke below our end of March forecasts.
Since then, gold and silver prices have recovered as the US Federal Reserve sounded more dovish at the March FOMC. The statement signaled that Fed rate hikes will come later and tightening will be a lower pace. This hurt the US dollar and resulted in a downward adjustment in market interest rate expectations. Gold and silver are highly sensitive to such developments. We therefore expect weakness ahead as our view is of a higher US dollar and higher US interest rates. A very strong US employment report and higher hourly earnings on Friday could push gold and silver prices below the March lows.
Despite the recovery in gold and silver prices, platinum prices remained under pressure. The stronger eurozone economic data releases failed to give a long-lasting support to platinum prices. This signals that sentiment is quite bearish. In addition, palladium prices have also fallen recently. This adds to platinum’s price weakness.
Signals of impatience among palladium investors
There are some signs that investors may lose patience with their net long palladium positions. According to the latest data of the commitment of traders’ report, investors have increased short contracts and modestly decreased long contracts. A loss of patience is fully understandable, because the expected supply shortage has not brought the price rally investors had expected. In addition, US and Chinese economy data (important palladium demand markets) have come in weaker or at best neutral. This has resulted in a downward adjustment in the demand outlook for palladium. As indicated in our previous Precious Metals weekly, we expect further price weakness, because investors have barely started to reduce their net-long positions.
ABN AMRO forecasts