Precious Metals Weekly – Range frustration

by: Georgette Boele

  • Lack of direction in precious metal prices…
  • …while the investor sentiment towards palladium has deteriorated


Break of the range?… Not yet…

Investors are disappointed and even in a way frustrated about the lack of direction in precious metal prices. About one month ago, there were some prospects that gold prices would higher. Prices reached USD 1,230 per ounce but they lost momentum again. Last week, the much better-than-expected US employment report resulted in a strong rally in the US dollar and in weakness in precious metal prices. Platinum prices made a new low, but did not close below the previous low that was set in March. Since then, prices have recovered. Similar price actions can be seen in silver and palladium. The range in silver prices is converging. Meanwhile, investor sentiment for palladium is deteriorating, but prices have not approached the low set in March of this year around USD 730 per ounce. However, when we look further down the road a stronger US dollar and higher US rates in the coming weeks and months should push precious metal prices lower. In short, we expect, ranges in precious metal prices to be broken on the downside.

Palladium is in a weak spot

This deterioration in investor sentiment towards palladium has been driven by the recent weaker-than-expected economic data out of China. Palladium prices are very sensitive to the emerging markets and especially China. Autocatalyst demand accounts for around 70% of total palladium demand. Of this demand, 23% comes from China (see graph). Recent Chinese economic data show weakness on the industrial side and the car production has slowed since March (despite the overall trend still being positive).

In the case of gold, silver and platinum, China is also a very crucial market especially from the jewellery demand side. In 2014, it accounted for more than 60% of platinum jewellery demand, 30% of gold jewellery demand and 25% of silver jewellery demand. Since Q2 2014, Chinese gold jewellery fabrication has increased. This indicates that despite China losing some momentum, jewellery fabrication is not much affected at the moment. Therefore, silver and gold prices have outperformed palladium prices this year.

At the start of this year, platinum prices underperformed all precious metals because negative investor sentiment towards the eurozone (more than 40% of annual auto catalyst demand) and the euro. Since mid-March, sentiment has recovered, helped by stronger-than-expected eurozone data. In general stronger Chinese jewellery demand and better demand prospects from the eurozone have helped platinum relative to palladium.