Precious Metals Weekly
Group Economics Macro & Financial Markets Research
Gold a safe-haven?
Georgette Boele, tel,+31 20 6297789
26 Augustus 2015 • • • •
Gold a safe haven? Gold is predominately driven by US Fed rate hike expectations… …and it did not live up to its safe-haven status We see lower gold prices going forward
Gold a safe-haven?
adjustment in US Fed rate hike expectations this year. This
For some years, we are of the opinion that gold’s safe-haven
has weighed seriously on the US dollar and therefore also
status has been reduced significantly. The gold market has
supported gold.
dramatically changed with the arrival of gold products that opened the market to a wider public. Gold is not only bought
Why did gold not rally further?
as a protection for uncertain times but also for speculation
Gold prices did not rally further because of the following
purposes. The latter goes completely against gold’s safe-
reasons. First, there was not a global panic or a severe
haven character and at times it more than overshadows it. For
systemic crisis that was reflected across all markets. In
example, at the height of the global liquidity crisis (when there
currency markets we argue that the movements were mainly
was a shortage of liquidity) gold prices dropped sharply
the result of closing of positions, but not because of aggressive
because investors valued cash more than gold. This suggests
safe-haven buying. In the case of gold, net-positioning has
that at times of severe crises, gold cannot live up to its safe-
been relatively small. Compared to the euro and the yen, there
haven status. The graph below shows that the trajectory of the
were therefore fewer positions to squeeze. Another
gold price has coincided with a buildup and liquidation of
explanation is that the weakening Chinese demand outlook
outstanding investor positions in gold. This is not a positive
outweighed safe haven-demand. For example, palladium
development for a safe-haven asset, because significant
prices were the weakest among precious metals because its
investor activity indicates that it is used for speculation rather
substantial exposure to the demand outlook in emerging
than safe haven. Indeed, if you were to buy gold for safe-
markets. They have dropped by around 13% since the close of
haven purpose you would invest in physical gold and not in a
last Thursday.
gold-related product. We expect gold price weakness to resume
Gold price and outstanding ETF positions
The recent developments have not altered our outlook for
Total ETF positions
precious metal prices. With financial markets now attaching a
Gold price in USD per ounce
100
2,200
80
1,800
60
1,400
40
1,000
20
600
lower probability to a Fed rate hike this year, the market impact will be more substantial if the Fed decides to hike s we still
0
expect. Then, financial markets will adjust upwards their interest rate hiking expectations for this year and next year. This will spur the US dollar and result in lower gold and other precious metal prices. So we remain confident about our forecasts.
200 04 05 06 07 08 09 10 11 12 13 14 15 Total ETF positions gold (lhs)
Gold price (rhs)
Source: Bloomberg
Gold more driven by Fed rate hike expectations Last week, gold prices rallied considerably when US CPI came in below expectations and financial markets judged that the FOMC minutes were more dovish. This and the deterioration of investor sentiment since then have resulted in a downward
ABN AMRO forecasts End period Gold Silver Platinum Palladium
26-Aug Close 14 1,127 1,185 15.7 14.2 974 1,216 798 525
Average Gold Silver Platinum Palladium
Q1 15 1,218 16.7 1,194 786
Q2 15 1,193 16.4 1,129 759
Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 1,184 1,172 1,050 1,000 950 900 850 800 16.6 15.7 14.5 15.0 15.5 16.0 16.5 17.0 1,141 1,081 950 1,000 1,050 1,100 1,150 1,200 736 674 600 600 625 625 650 650 Q3 15 1,111 15.1 1,015 637
Q4 15 1,025 14.8 975 600
Source: ABN AMRO Group Economics
2015 Q1 16 Q2 16 Q3 16 Q4 16 1,137 975 925 875 825 16.0 15.3 15.8 16.3 16.8 1,078 1,025 1,075 1,125 1,175 700 613 625 638 650
2016 900 16.0 1,100 631