Precious Metals Weekly
Group Economics Macro & Financial Markets Research
Gold resumes downtrend
Georgette Boele, tel,+31 20 6297789
20 July 2015
Gold prices break lower… …because of a stronger US dollar, Fed rate hike expectations and constructive investor sentiment Our year-end target for gold is USD 1,000 per ounce Gold price weakness drags down other precious metal prices
Gold breaks below crucial support level
Relationship precious metals and 3M US interest rates
This morning, gold prices broke below crucial support level of
5-day rolling correlation
1,130 (previous low), falling to a low of USD 1,090 per ounce
1.0
(or -4%). Market players often put stop loss orders below important support levels. Hence, when such a level is taken
0.5
out (like this morning), prices move substantially lower. Monday morning liquidity conditions are generally thin. This also had a considerable impact on the movements this
0.0 -0.5
morning. The break lower in gold prices made them the last shoe to drop, meaning it was the last precious metal where the outlook had not turned negative yet. Our target for the end of
-1.0 Apr 15
this year of USD 1,000 per ounce. Our target for the end of
May 15
Silver
Jun 15
Platinum
Jul 15
Palladium
Gold
September of USD 1,100 per ounce is probably too bullish. Source: Bloomberg
Why have gold prices fallen? The fall in gold prices has been in the making for some time
Gold price weakness drags down other precious metals
now. Gold-supportive developments such as a temporary
The sharp weakness in gold prices also has had a negative
weaker US dollar and the Greek saga were not able to push
impact on other precious metal prices. They all moved lower.
gold prices higher. Instead, gravity started to be felt and the
However, there are two important developments. First, silver
bottom fell out under prices. Most important dynamics that
prices are often underperforming if there is general precious
have contributed to the drop in gold prices are a stronger US
metal price weakness. This morning, gold has been the
dollar, improving investor sentiment in financial markets, and
weakest precious metal, while silver has been the strongest.
expectations that the US Federal Reserve will start hiking
This is because gold prices are leading the move. Second,
interest rates this year (following a relatively hawkish sounding
gold prices have also underperformed platinum prices. This
Fed Chair Yellen). Gold prices have a strong tendency to
could be a change in trend. We expect platinum prices to
weaken when the US dollar and 3-month US interest rate
outperform gold prices going forward, because of an improving
expectations rise (see graph on the right).
fundamental picture for platinum. However, we had not expected that platinum prices would drop below USD 1,000
However, there have been reports that the market was
per ounce.
disappointed by the increase of gold holdings by the PBoC. As a result, this was seen as a major contributor of the gold price
ABN AMRO forecasts
weakness on Friday. We tend to disagree. Gold prices did not
End period Gold Silver Platinum Palladium
20-Jul Close 14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 1,113 1,185 1,184 1,172 1,100 1,000 950 900 850 800 14.8 15.7 16.6 15.7 15.0 16.0 16.5 17.0 17.5 18.0 979 1,216 1,141 1,081 1,150 1,200 1,250 1,300 1,350 1,400 607 798 736 674 650 650 675 675 700 725
Average Gold Silver Platinum Palladium
Q1 15 1,218 16.7 1,194 786
move when the news came out. It only started to move after the US market opened and US data were released (CPI, Housing starts, Building permits). Therefore, gold price weakness is, in our view, mainly the result of a stronger US dollar and Fed rate hike expectations in an overall constructive investor climate.
Q2 15 1,193 16.4 1,129 759
Q3 15 1,136 15.4 1,115 662
Q4 15 1,050 15.5 1,175 650
Source: ABN AMRO Group Economics
2015 Q1 16 Q2 16 Q3 16 Q4 16 1,149 975 925 875 825 16.0 16.3 16.8 17.3 17.8 1,153 1,225 1,275 1,325 1,375 714 663 675 688 713
2016 900 17.0 1,300 684