161006 precious metals watch too early to buy

Precious Metals Watch

Group Economics Macro & Financial Markets Research

06 October 2016

Too early to buy Georgette Boele Co-ordinator FX & Precious Metals Strategy Tel: +31 20 629 7789 georgette.boele@nl.abnamro.com

 Gold prices have broken under the 200-day moving average…  …signalling that this year’s uptrend is over  In the near-term investors will likely continue to liquidate positions…  … therefore it is too early to buy gold  Our forecasts are under revision How different a week can be?

How different a weak can be. At the start of last week, gold prices made a high just above USD 1,341 per ounce. The outlook was range-trading but gold prices clearly struggled to move higher because of the overhang of the massive speculative positions. In just a matter of days, the outlook completely changed. Not only was our projected range in gold prices broken, also the uptrend came to an end when gold prices broke below the 200-day moving average. What happened? We had expected that investors would continue to invest in gold for the following reasons: 1.

A snail-pace of rate hikes by the Fed this year and next year

2.

Low real-yields in the US

3.

The unattractive US growth/inflation mix will weigh on the US dollar

4.

Central banks elsewhere to continue monetary policy easing

5.

Brexit would result in more safe haven demand for gold

Less supportive monetary policy expectations…

If we add everything up, in fact the opposite combination played out. First of all, the actions of the Bank of Japan have been viewed by investors as a tapering. In addition, there have been reports that the ECB would taper soon as well. However, we don’t share these views. We think that the ECB and the BoJ will extend easing before long.

Meanwhile, expectations for a November rate hike have risen – they remain low though – following more hawkish Fed rhetoric. Overall, we think that financial markets are too worked up about a possible ECB taper and Fed November rate hike. When these expectations ease again gold prices should receive some support.

…and a hollow out of the gold support case Recently, financial markets refocused on the impact of Brexit on the UK economy. This and hard rhetoric by UK and eurozone officials have resulted in a substantial fall in sterling. However, all of this barely affected global investor sentiment on financial markets.

Therefore, gold prices have not benefitted. We don’t expect a sharp deterioration in investor sentiment because of the Brexit developments. We even expect the topic to move

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Precious Metals Watc ch - Too early to buy - 0 6 October 2016 2

more to t the backgrou und again as market m driver in the coming weeeks and montths. As a result, gold prices willl unlikely profitt.

The ris se in US yieldss and the uptick k in US real yie elds have clearrly been negativ ve develo opments for go ld prices. We expect e that this s move has runn its course so that it should d no longer be a headwind.

The technical picture e has clearly turned negative with w the break below the 200 0-day moving averag ge in gold price es. This would mean that this year’s uptrendd is over. We need to be careful though. First of all, what rea ally matters is a daily and a w weekly close be elow this level. Second, S if the U US employmen nt report tomorrrow comes in w weaker-than-expected, gold prices could be close to USD 1,300 1 again.

Near-tterm outlook The sp peculative com mmunity is subs stantially net-long gold. With tthe dramatic ch hange in the technic cal outlook, invvestors will likely continue to liquidate positioons and use an ny uptick in gold prices as an opp portunity to sell. Therefore, we w think that it iss unlikely that buyers will step in n in the near-te rm. The mome entum is simply y too strong. Ass soon as, a co onsiderable amoun nt of positions a are cleared, bu uyers may step p in again. For nnow the next support level in gold d prices is USD D 1,200 per oun nce. Needleless to say our fo recasts are currently under review w.

ABN AMRO precio ous metals fo orecasts (und der review) Change es in red/bold End period p Gold Silver Platinum Pallad dium

04-O Oct 1,28 84 18 8.3 99 93 70 05

Dec-15 1,061 13.9 894 562

Ma r-16 1, 233 15 5.38 976 563

Avera age Gold Silver Platinum Pallad dium

Q1 16 1 1,18 81 14..9 97 75 52 27

Q2 16 1,258 16.8 1,004 568

Q3 3 16 1, 335 1 19.6 1, 086 678

Source: ABN AMRO Grouup Economics

Jun-16 Se p-16 Dec-16 Mar--17 Jun-17 Sep-17 Dec-17 325 1,350 1,40 00 1,450 1,322 1,316 1,325 1,3 18.48 19.17 19.50 19. 50 20.00 22.0 00 24.00 1,018 1,027 1,050 1,0 000 1,200 1,30 00 1,400 597 721 650 6 625 650 70 00 725 Q4 16 1,320 19.3 1,039 685

2 2016 Q1 17 Q2 17 Q3 17 1,274 1,325 1,3 338 1,375 17.6 19.5 19 9.8 21.0 1,026 1,025 1,100 1,250 615 638 6 638 675

Q4 17 1,42 25 23. 0 1,35 50 713

2017 1,366 20.8 1,181 666

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Precious M Metals Watc ch - Too early to buy - 0 6 October 2016 2

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