Precious Metals Weekly
Group Economics Macro & Financial Markets Research
Gold as risky asset?
Georgette Boele, tel,+31 20 6297789
14 October 2015
Gold behaves as a risky asset, but it is mainly a US dollar move… Gold has been the best performing precious metal this week but this rally will unlikely continue… …while the palladium price rally has lost momentum
Gold as a risky asset?
…while palladium being the weakest
For some gold bulls, the unimaginable thing happened.
In the period that the emission scandal hit the news until last
Recently, gold prices have behaved as a risky asset. The
Friday, palladium prices rallied by more than 17% versus the
behaviour of gold prices already changed at the end of
US dollar. This was not only the result of expectations of future
September, but on 2 October it became clear. What was the
higher demand for palladium autocatalysts but also the impact
trigger for this change in behaviour? In short, the weaker-than-
of a weaker US dollar (see above). Since Friday, sentiment
expected US employment report. This has resulted in the
has turned somewhat. There are some reasons for this. First,
further pricing out of Fed rate hikes, which has improved
there has been some deterioration in investor sentiment and
overall investor sentiment and has pushed the US dollar lower.
palladium is the precious metal that is the most negatively
Often better investor sentiment is negative for gold prices.
affected by this. Second, Chinese and German economic data
However, this is not the case if it coincides with lower
have come in below expectations. Third, investors have taken
expectations on US interest rates and a lower US dollar. The
a step back and moderated their bullish stance on palladium.
latter two forces are more dominant for gold prices. The US dollar currently behaves as a cyclical currency where the state
Palladium prices versus speculative positions
of the US economy and interest rate expectations are the
Number of contracts
crucial drivers. Both these forces have been negative for the
40,000
palladium price
1000
US dollar lately. Therefore, the US dollar has moved lower across the board including versus precious metals. Gold prices
900
30,000
appear to have behaved as a risky asset, whereas while in fact its price has mainly been supported by US dollar weakness.
800 20,000 700
Gold best performing precious metal this week…
10,000
600
Gold prices have been the strongest performing precious metal so far this week with platinum not far behind as explained above. Gold’s fortunes are the most closely linked to the
0 Jan 14
Jan 15
Net positions (lhs)
sentiment on the US dollar. We expect the US dollar to remain under pressure in the near-term unless US economic data
500 Jul 14
Jul 15
Palladium prices (rhs)
Source: Bloomberg, ABN AMRO Group Economics
surprise to the upside. It is unlikely that the risk-on environment will continue to support gold prices. The futures markets has priced out a Fed rate hike this year while
ABN AMRO forecasts End period Gold Silver Platinum Palladium
14-Oct Close 14 1,166 1,185 15.9 15.7 988 1,216 688 798
Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 1,184 1,172 1,112 1,100 1,050 1,000 950 900 16.6 15.7 14.5 15.0 14.5 14.0 14.5 15.0 1,141 1,081 910 900 875 850 900 1,000 736 674 652 650 625 600 625 650
supportive and hence gold negative. We expect gold prices to
Average Gold Silver Platinum Palladium
Q1 15 1,218 16.7 1,194 786
Q3 15 1,126 15.0 993 618
move back to USD 1,100 per ounce this year once the US
Source: ABN AMRO Group Economics
according to the options market there still is small possibility. According to our scenario, at some point in time, a Fed rate hike this year is completely priced out and this is the moment that the US dollar could start to recover also versus gold prices. In such an environment, resilient US data in constructive investor sentiment will likely be US dollar
dollar recovers somewhat.
Q2 15 1,193 16.4 1,129 759
Q4 15 1,106 14.8 905 651
2015 Q1 16 Q2 16 Q3 16 Q4 16 1,170 1,075 1,025 975 925 16.0 14.8 14.3 14.3 14.8 1,075 888 863 875 950 700 638 613 613 638
2016 1,000 14.5 894 625