Precious Metals Weekly
Group Economics Macro & Financial Markets Research
Gold still expensive
Georgette Boele, tel,+31 20 6297789
9 September 2015 • • •
Gold is still expensive compared to cyclical assets… …mainly because of the underperformance of cyclical commodities in a risk averse environment We expect gold prices to weaken and price ratios relative to other commodities to move lower
Gold is still expensive compared to cyclical assets
…and deterioration in investor sentiment supported gold
In this report we take a different angle to determine if gold
In addition, investor sentiment has deteriorated this year
prices are expensive relative to other commodity prices,
because of a number of factors. In general, cyclical assets
including oil prices and copper prices. We compare the current
underperform when uncertainty and nervousness increase.
values to the long-term average (since the 1990s) and our
The environment has been suitable for gold to outperform.
forecasts for the end of 2015 and 2016. We find that gold
However, gold’s safe haven status has been sharply reduced
prices are still relatively expensive despite prices being at 5-
because of investors positioning in gold. As a result, gold has
year lows (see table below).
been able to profit less than in previous periods of risk aversion when investor positioning was lower.
Gold still relatively expensive Going forward we expect lower gold ratios
Current ratios, average and our year-end forecasts
Current
Average
2015e
2016e
We expect gold price ratios relative to other commodities to
22.70
15.32
16.67
12.31
weaken for several reasons. For a start, expectations about
Gold/Platinum
1.12
0.77
1.00
0.67
the demand outlook for cyclical commodities will likely improve.
Gold/Palladium
1.92
1.86
1.90
1.33
This is mainly because we expect the global economy to
Gold/Silver
76.0
65.8
66.7
47.1
strengthen going forward driven by strong domestic demand.
0.19
0.13
Moreover, we expect investor sentiment to improve, with lower
Gold/Brent
Gold/Copper 0.21 0.16 Source: ABN AMRO Group Economics, Bloomberg
equity volatility (VIX) as a result. In addition, the recent bouts of risk aversions probably have resulted in reducing of
Gold/Brent still high
substantial outstanding long positions in cyclical commodities.
Ratio
However, investor positions in precious metals remain
30
substantial. Therefore, we expect investors to further reduce net long positions in the wake of Fed rate hikes this year and
25
next year and a higher US dollar. Moreover, we see more downside if we take into account the gold price corrected for
20
US consumer price index. If we take all the above-mentioned measures into account, gold weakness is not over yet and
15
further price falls are likely. 10 10
11
12
13
14
15
ABN AMRO forecasts End period Gold Silver Platinum Palladium
09-Sep Close 14 1,120 1,185 15.7 14.7 996 1,216 798 585
suffered because of a supply overhang (mainly oil), smaller
Average Gold Silver Platinum Palladium
Q1 15 1,218 16.7 1,194 786
supply deficit (palladium) and considerable downward
Source: ABN AMRO Group Economics
Gold/Brent ratio Source: Bloomberg
Cyclical commodities have underperformed… There are several reasons for this. First, cyclical commodities such as copper, platinum, palladium and oil prices have
adjustment of demand outlook from China (copper, palladium). Gold is not a cyclical asset and therefore it has suffered less.
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 1,200 736 674 550 525 500 525 550 600 Q3 15 1,111 15.1 1,015 600
Q4 15 1,025 14.8 975 538
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 1,175 700 513 513 538 575
2016 900 16.0 1,100 534