Group Economics
Precious Metals Weekly
Macro & Financial Markets Research
01 December 2015
Outlook 2016 Georgette Boele Co-ordinator FX & Precious Metals Strategy Tel: +31 20 629 7789 georgette.boele@nl.abnamro.com
Substantial price weakness in 2015… …and weakness to continue in the months ahead We maintain our negative outlook for gold prices in 2016… …followed by a recovery in 2017 Cyclical precious metals to recover in 2016 and 2017 Substantial price weakness in 2015… So far this year, cyclical precious metal prices such as platinum and palladium have weakened substantially; by more than 30%. Meanwhile, silver and gold prices have only lost around 10%. This has been the year in which all precious metal prices fell. Why have platinum and palladium prices declined by such a large extent? For a start, investors have aggressively liquidated open positions (speculative and ETF positions) in both precious metals. Investor sentiment has deteriorated because of the worries about the demand outlook in major platinum and palladium markets. In addition, the emission scandal has also given a blow to the near-term investor sentiment and the demand outlook. Last but not least, the prospect of a Fed lift-off in December and strength of the US dollar have weighed on all precious metal prices.
Precious metals’ price performance 2011-2015 In % with USD as basis, 2015 ytd
20 10 0 -10 -20 -30 -40 Silver 2011
Gold 2012
Palladium 2013
2014
Platinum 2015
Source: Bloomberg, ABN AMRO Group Economics
…and weakness to continue in the months ahead We expect investors to continue to liquidate positions in the months ahead because of a higher US dollar and higher US rates. It is likely that new lows in prices will be reached before the end of the first quarter of 2016. We expect gold prices to break below USD
Insights.abnamro/en
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Precious Metals Week kly - Outlook k 2016 - 01 D December 2015 2
1,000 per ounce in th he coming mon nths. Silver pric ces could drop to USD 13.5 per p ounce while platinum p and p palladium prices s could drop be elow USD 800 per ounce and d USD 500 per ounce, respective ely.
ETF liquidation l un nder way Total ET TF positions in milllion troy ounces
4.0 3.0 2.0 1.0 0.0 0 07
08
09
10
11
12
Palladium
13
1 14
15
Platinum
Source: Bloomberg, ABN N AMRO Group Ec conomics
Non-c commercial p positions in platinum p In contracts
Platinum pricce
60,0 000
1,600 0
50,0 000 1,400 0 40,0 000 30,0 000
1,200 0
20,0 000 0 1,000 10,0 000 0 Jan 14
800 Jul 14 Net po ositions (lhs)
Jan 15
Jul 15 Platinum pricees (rhs)
Source: Bloomberg, ABN N AMRO Group Ec conomics
We ma aintain our ne egative outlook for gold pric ces for 2016 Gold is s the precious metal that has the closest ties to developmeents in moneta ary policy in the ma ajor economiess such as the US. U The upcom ming Fed lift-off has weighed on o gold prices because the d divergence on what w is paid on n gold and on U US dollars incre eases. In an environment of optim mistic investor climate, c investo ors search for bbetter yielding opporttunities and asssets that are se ensitive to glob bal growth. Golld as an investment asset does not n hold these a attributes. It is often in deman nd when investtors worry abou ut global growth h, (geo) politicss, the US dollarr and inflation, a so-called saffe haven. Gold d prices may be sup pported in wave es of risk avers sion. However, when there is systemic risk in i financial markets it will not beh have as the ulttimate safe hav ven asset. For example, at th he height of the glo obal liquidity criisis (when therre was a shorta age of liquidity)) gold prices drropped sharply y because inve estors valued cash c more than n gold. This sugggests that at times t of severe e crises, gold ccould not live up p to its safe-ha aven status. xpect the Fed to o raise rates ve ery slowly in 20 016, but even tthis scenario is s not priced We ex into ma arkets. A rise i n US Treasury y yields should push gold price ces towards US SD 900 per
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Precious Metals Week kly - Outlook k 2016 - 01 D December 2015 2
ounce or even below w in 2016 mainly because of in nvestor positio n liquidation. Some S may wonde er why investorr liquidation has s such a substa antial impact oon prices. The graphs g below show the physsical demand sources for gold d. Jewellery sti ll accounts for the most demand but it has h declined ov ver the years. IIn September 2015 2 it important source of d accoun nted for slightlyy more than ha alf of the deman nd, while it wass around three-quarters in March 2000 (quarterlly data). This decline d has being felt in gold pprices. Moreov ver, gold’s o decreased. In n general, the m most stable forrms of use for industrial purrposes has also deman nd are jewelleryy and industria al demand. Mea anwhile, retail iinvestment has s risen sharply y. This is the m most volatile an nd fluid form of demand. Overr the recent yea ars, retail deman nd has pushed prices to the peak p in Septem mber 2011, but also to the currrent levels close to t USD 1,050 p per ounce.
March 2000 Gold de emand
Jeweellery fabrication Industrial fabrication Retaail investment Net official o sector
Source: Bloomberg, ABN N AMRO Group Ec conomics
Septe ember 2015 Gold de emand
Jeweellery fabrication Industrial fabrication Retaail investment Net official o sector
Source: Bloomberg, ABN N AMRO Group Ec conomics
2017 ‌but a recover in 2 For 20 016, the directio on in Fed policy compared to market expecttations and the e US dollar (higher) will mainly b e negative for the gold price denominated inn US dollars. However, H as pect the US do ollar to peak we e also expect th he gold price too bottom. Therefore, we we exp expectt gold prices to o pick up in 201 17. Lower mine e supply and heealthy jewellery y demand should d also provide ssupport to gold d prices in 2017 7.
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Precious M Metals Week kly - Outlook k 2016 - 01 D December 2015 2
Over the coming yea ars we expect retail r investmen nt share in totaal gold demand d to increase furtherr. As a result, g gold prices will become more sensitive to thee behaviour of investors. Gold is s not only boug ght as a protec ction for uncerta ain times but a lso for specula ation. The latter goes g completelly against gold’s safe-haven character c and aat times it more e than oversh hadows it. Sign nificant investorr activity could indicate that itt is used for spe eculation rather than safe have en. If you were to buy gold for safe haven p urpose you wo ould invest in cal gold and no ot in a gold-related product. physic Cyclic cal precious m metals to recov ver in 2016 an nd 2017 Curren ntly investors a are unwinding their positions in the cyclical pprecious metals s and this will like ely continue in the months ah head. Below the e surface fundaamentals contiinue to improv ve. We are con nstructive about domestic dem mand outlook foor the US and the eurozo one for 2016 an nd 2017. In add dition, we expe ect the consum mption in China to remain relative ely stable. The erefore, we exp pect demand fo or autocatalystss, industrial and d jewellery deman nd from these ccountries to inc crease. When investors start tto focus on the ese underlying fundamen ntals, investor demand d will als so turn positivee again, especiially when S dollar starts to o weaken in 20 017. The low platinum and paalladium prices s have the US triggerred efficiency w waves with major mining companies. Thereffore, mine supp ply will likely decrea ase in the comiing years. This s should also provide support to prices.
Platin num sources of demand In thous sand troy ounces
8,00 00 6,00 00 4,00 00 2,00 00 0 -2,00 00 7 08 09 10 11 12 13 14 15F 16F 17F 05 06 07 Autocattalysts
Jewellery
Retail in nvestment
Other industrrial demand
Source: Bloomberg, ABN N AMRO Group Ec conomics
AB BN AMRO pre ecious metals s forecasts Cha anges in red/bold
End period E G Gold S Silver P Platinum P Palladium Average A G Gold S Silver P Platinum P Palladium
4 01-Dec Close 14 1,068 1,185 5 14.2 15.7 842 1,216 550 798 8 Q1 15 1,218 16.7 1,194 786
Q2 15 5 1,193 3 16.4 4 1,129 9 759 9
Sou urce: ABN AMRO Group Economicss
Mar-15 Jun n-15 1,184 1,172 1 15.7 16.6 1,141 1,0 081 736 6 674 Q3 15 1,126 15.0 993 618
4 15 Q4 1, 106 1 14.8 905 651
n-16 Sep-16 De c-16 Mar-17 Ju un-17 Sep-17 De ec-17 Sep-15 De c-15 Mar-16 Jun 950 925 975 900 900 950 975 1,000 1 1,112 1,000 14.5 1 14.0 14.5 16.0 17.0 13.5 13.5 15.0 15.5 18.0 910 800 775 1 1,050 1,100 1 800 850 900 950 1,000 530 500 700 525 550 652 600 625 650 675 2015 Q1 Q 16 Q2 16 Q3 3 16 1,165 988 963 938 15.9 1 14.3 13.5 13.8 788 788 1,075 825 515 513 700 538
Q4 16 913 14.8 875 575
2016 2 950 14.1 819 535
Q1 17 900 15.3 925 613
Q2 17 Q 925 15.8 975 638
Q3 17 963 16.5 1,025 663
Q4 17 Q 988 17.5 1 1,075 688
2017 944 16.3 1,000 650
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Precious M Metals Week kly - Outlook k 2016 - 01 D December 2015 2
nd out more abo out Group Eco onomics at: http ps://insights.a abnamro.nl/en n/ Fin
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