Precious and Base Metals

Precious Metals Monthly

May 6, 2019

Precious Metals Monthly: Platinums time to seek out an outperformance




GOLD finished April almost unchanged, unable to fully escape $1300 in either direction, which is a fair performance given the moderately stronger $, the lack of persistent macro fear and buoyant US equities prices. Despite the unwind of both speculative (COT) and ETF investor interest (a total of 6.3m oz exited), the fall in real rates during April promoted CB and OTC buying; we continue to believe that it wont take just 1 attempt to break the cyclical range earmarked by $1350 as Gold remains a 2nd-tier investment while it awaits for a $-negative or vol-positive catalyst to evolve.


SILVER: The Gold/Silver ratio remains very elevated near the top end of a longterm range due to fact that Silver is no longer poor mans gold (with nominal Gold prices well below $1500) while it also fails to attract the steady Central Bank inflows seen in Gold. Overall, the longer Silver remains near its cyclical floor around $15, AND the longer price volatility is contained, the better chance it has of attracting and inducing new technologies and end-use demand. We continue to believe the Gold/Silver ratio will remain lofty at 82-86; tactical opportunities exist with small curve tightening (which could inject a some CTA short covering) but large breakouts are limited, when Gold is <$1350, as the investment case for Silver is absent, for now.


PLATINUM was able to break through the $880 technical inflection point in early April, but any price extension wasn't possible as it contended with a Gold reversal (at $1310), the unwind of supply-side fear length ( AMCu, Eskom), and further headwinds from weak European data. Platinum should post a (smaller) surplus next year, which could swing into deficit if European growth (and thus diesel/auto sales) rebound and investor interest remains persistently strong.


PALLADIUM prices whipped around $1400, tormenting anyone looking for a sustained trend outside of its $1300-1450 comfort zone. With Palladium prices (and forwards) probing the bottom of its YTD range, there are destocking changes occurring that will put to test just how much tighter global environmental standards are in the face of structurally weaker global auto sales (global vehicle sales fell by 4.7% y/y in March for a 7th consecutive month of YoY declines).


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