PRECIOUS METALS | Yellow Metal Shines
Precious Metals - Price Movement (Annual Averages) 2013
Jan-Dec 1487 1411 1265 2014 Jan-Dec 1384 1160 2015 Jan-Dec 1053 23.8 19.1 15.7 Gold Planum Silver
peak of 329 contracts/troy oz of physical gold to around 150 by the end of the year. However, gold seems to be getting its groove back. Seeing the comeback of the
Interest rates are not a dominant driver of the gold price once the effect of the dollar is taken into account
yellow metal, it seems gold is now the safe harbor in the choppy waters, as risk aversion dominated the tone of the first few weeks of this year.
By mid-January, gold prices had risen around 3% year to date (YTD) and had managed to break above $1,100/troy oz in early January, the first time since November 2015. Market debate over when the next Fed hikes are coming will affect the trajectory of gold in general this year but while the current volatility persists, gold may continue to receive interest, Emirates
NBD report maintains. World Gold Council (WGC) also maintains that gold price declined in 2015 in US dollar terms but not in all currencies. “In our view, the effect that US rates have had on the gold price is overdone and may take a back seat this year. Four years after gold’s nominal high, amid expensive stock valuations and high market risks, gold’s role as a portfolio diversifier and tail risk hedge is particularly relevant,” WGC said. While the US dollar, it adds, is certainly
a significant driver for gold, there are two additional important points to consider: One, it is not the only driver, and second, it is not always the most relevant metric for most investors. The Fed increased the federal funds rate by 0.25 basis points during its last 2015 meeting. Widely anticipated by the market, this moved the
Gold gets a safe-haven boost to start 2016
110 105 100 95 90 85 80
Gold S&P 500
target range between 0.25 and 0.5 basis points. However, what is not so certain is how quickly and how high they will raise rates to ‘normalise’ them (ie, reach their terminal rate). The Fed expects to increase rates by 1% by the end of 2016. Market consensus is more dovish and expects the Fed Funds rate to be below 1% by the end of 2016.
Either way, rates may remain low for some time. In WGC view, interest rates are not a dominant driver of the gold price once the effect of the dollar is taken into account. And the dollar has already strengthened more in the past two years than it has since the ‘dot-com bubble’ burst. In fact, the dollar is at the highest level it’s been at the beginning of a Fed tightening cycle since the 1980s. However, analysts at Deutsche Bank
forecast more gloom and doom for gold and silver in 2016, expect the commodity negative cycle to come to an end. Further rate hikes in the U.S. by the US Fed could drive gold prices to $980 an ounce by the fourth quarter of 2016, the analysts said. Deutsche Bank expects gold and silver prices to average around $1,033 an ounce and $14.30 an ounce in 2016, respectively. Credit Agricole also maintains gold prices to remain under pressure early this year as the U.S. dollar gains. It forecasts gold at $1,000 by the end of the second and third quarters this year. Similarly, ABN Amro too expects more weakness in gold and silver early this year, with prices dipping below $1,000 an ounce and $13.50 an ounce for gold and silver, respectively.
Platinum Group: Mixed Outlook World Platinum Investment Council estimates that the platinum market will be close to balanced this year. Total mining supply and recycled platinum is forecast to increase, while modest demand growth will be seen across jewellery, industrial and automotive segments. HSBC however expects platinum and Palladium to strengthen in 2016 with prices forecast to rise to $1,005 an ounce for this year and $1,195 for 2017, while Palladium is expected to average $655 this year and $760 in 2017. “For palladium, positive auto sector and industrial demand should help stabilize prices,” the bank said, adding, “Near-term mine supply appears adequate but we expect the market will still run a wide production consumption deficit in 2016, which should support prices.”
February 2016 |
www.wealth-monitor.com
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Sources: Emirates NBD, WGC, Kitco
Source: World Bank
Source: Bloomberg, Emirates NBD Research. Note: Dec 1 2015 = 100
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