Precious Metals weekly – Road to nowhere

by: Georgette Boele

150416-Precious-Metals-weekly.pdf ()
  • Precious metal prices are going nowhere at the moment…
  • … and this will continue until a new driver presents itself…
  • …such as a restart of the US dollar rally and/or higher US rates

Road to nowhere…

Precious metal prices are going nowhere. For example, gold prices are bouncing around the USD 1,200 per ounce level putting both bulls and bears on their wrong foot all the time. Silver prices seem to have bottomed out, but they fail to move strongly higher. Platinum prices may also have bottomed out, but also here the momentum is lacking. The price behaviour in palladium has become more erratic, disappointing both bulls and bears. In short, there is no clear direction in precious metal prices at the moment.

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…but be careful not to micro-manage

Environments like these happen in financial markets, because of investors waiting for new drivers or different drivers opposing each other. What is the best approach to take? Stop to micro-manage the situation and take a helicopter view. More importantly, be patient in allowing your conviction view to take shape.

Have we lost our conviction?

No. We remain convinced of strong rebound in the US economy, positive investor sentiment, a higher US dollar and the Fed starting hiking rates in September. So the recent weaker than expected data have not resulted in a lower conviction of our strong US economy call. In addition, positive investor sentiment will weigh on safe-haven demand for gold. Moreover, a higher US dollar and higher US rates are clear negatives for all precious metals, because investments in precious metals are less attractive.

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What have investors done?

Over recent weeks, speculative investors have become less negative about the price outlook for precious metals. This has been reflected by an increase in net-long positions, which has mainly been the result of a reduction in short positions and an increase in long positions. This is seen in movements in gold, silver, platinum and palladium positions. In the case of total ETF positions, in 2015 investors have reduced them somewhat. But a real liquidation has not materialized yet and positions are still substantial, which points to further downward price risk.

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