Group Economics
Precious Metals Weekly
Macro & Financial Markets Research
06 April 2016
Investor positioning divergence Georgette Boele Co-ordinator FX & Precious Metals Strategy Tel: +31 20 629 7789
• Divergence in performance among precious metals… • …because investors have turned positive on gold and silver… • …but stay cautious on platinum and palladium
georgette.boele@nl.abnamro.com
Divergence in performance … This week we focus on investor positioning in precious metals. Since the start of this year, precious metal prices have outperformed the US dollar with the exception of palladium prices. Gold prices have rallied by roughly 15% while silver only by 8%. Platinum prices have risen by 6% while palladium prices have dropped 2%. This divergence is not unusual as US dollar weakness and safe haven demand initially pushed gold prices higher.
Gold speculative long and short positioning Number of contracts
350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 07
08
09
10
11
12
Long contracts
13
14
15
16
Short contracts
Source: Bloomberg, ABN AMRO Group Economics
…because investors hold a different stance to individual precious metals Gold and silver are the precious metals with the closest links to currency markets and therefore react more strongly to developments in the US dollar and expectations about the Fed rate cycle. In general, the sensitivity towards the US dollar and US rates decreases if a precious metal is more cyclical in nature. Palladium is the most cyclical precious metal because demand mainly comes from growth sensitive parts of the world economy (industrial applications and car sales) while it is barely used in reserves of central banks (like gold) and/or as a possible means of payment in case of a worst case scenario (gold, silver). Because of these characteristics, investors have also held a different stance to the individual precious metals. For example, the sharp increase in speculative net-long
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Precious Metals Weekly - Investor positioning divergence - 06 April 2016
positions in gold and silver has been the result of a substantial rise in long positions and a considerable reduction in short positions (see graphs above and below).
Silver speculative long and short positioning Number of contracts
100,000 80,000 60,000 40,000 20,000 0 07
08
09
10
11
12
13
Long contracts
14
15
16
Short contracts
Source: Bloomberg, ABN AMRO Group Economics
This signals that investors believe that the downside risks to the price outlook have receded and they have even started to believe in upside momentum. The net-long positions may be large, but we don’t believe that they are in excessive territory yet for gold. For silver, speculative net-positions are excessive and they pose a downside risk to prices. If we take a closer look at total ETF positions, we think that the upside in gold prices is far from over. However, silver prices will struggle to make gains in the near future.
Platinum speculative long and short positioning Number of contracts
70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 07
08
09
10
11
12
13
Long contracts
14
15
16
Short contracts
Source: Bloomberg, ABN AMRO Group Economics
In the case of platinum and palladium, the situation is completely different. The netspeculative positions have risen despite the fact that long positions have been reduced (see graphs above and below). This means that speculative investors are of the view that the downside in prices is limited, while they also use the price rally as opportunity to offload long positions. In short, they are not convinced yet of a turnaround in price trend. The build-up in total ETF positions also shows this hesitance. What will convince investors to become positive on platinum and palladium prices? Better economic data (cyclical and car sales) in the US, eurozone, Japan and China. We don’t expect a strong upward momentum in these data, however we do expect a stabilisation and a modest recovery
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Precious Metals Weekly - Investor positioning divergence - 06 April 2016
towards the end of this year. This together with the overall improvement in sentiment towards precious metals as a category because of downward pressure on the US dollar and the Fed remaining on hold should be enough to slowly convince investors to position for higher platinum and palladium prices at these relatively attractive levels.
Palladium speculative long and short positioning Number of contracts
40,000 30,000
20,000
10,000 0 07
08
09
10
11
12
Long contracts
13
14
15
16
Short contracts
Source: Bloomberg, ABN AMRO Group Economics
ABN AMRO precious metals forecasts Changes in red/bold
End period Gold Silver Platinum Palladium
06-Apr Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 1,220 1,061 1,233 1,300 1,350 1,370 1,370 1,400 1,425 1,450 13.9 15.38 16.50 17.00 17.50 17.50 18.00 18.50 19.00 15.0 894 976 1,000 1,050 1,100 1,125 1,150 1,200 1,250 945 562 563 543 620 640 660 680 700 720 740
Average Gold Silver Platinum Palladium
Q1 16 1,181 14.9 975 527
Q2 16 1,266 15.9 988 592
Q3 16 1,325 16.8 1,025 630
Q4 16 1,360 17.3 1,075 650
Source: ABN AMRO Group Economics
2016 Q1 17 Q2 17 Q3 17 Q4 17 2017 1,283 1,370 1,385 1,413 1,438 1,401 16.2 17.5 17.8 18.3 18.8 18.1 1,016 1,113 1,138 1,175 1,225 1,163 600 670 690 710 730 700
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Precious Metals Weekly - Investor positioning divergence - 06 April 2016
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Precious Metals Weekly - Investor positioning divergence - 06 April 2016