Precious Metals Weekly
Group Economics Macro & Financial Markets Research
Bubbling below the surface
Georgette Boele, tel,+31 20 6297789
7 May 2015 • • •
It looks like a boring market…but a lot is happening below the surface Higher US real yields more than offset a weak dollar We remain negative on precious metal prices because we expect a restart of the dollar rally
Looks like a boring market…
So what factor is currently even outweighing the impact of a
Since the FOMC meeting in March, precious metal prices have
weaker dollar? Developments in the bond market are. Inflation
moved sideways. For example platinum prices have ranged
expectations for 5 year ahead have risen in line with higher oil
between 1115 and 1180, gold prices between 1170 and 1225,
prices. In turn, this has also pushed up bond yields in Europe
silver prices between 15.6 and 17.4 and palladium moved
and the US. In general, higher inflation expectations are
most of the time in the 750 to 800 range. Price action within
positive for gold prices, which is often seen as an inflation
the range has been very erratic or volatile. This looks like a
hedge. However, this time around gold and other precious
boring situation. In fact a lot is happening.
metal prices have been under pressure (with the exception of palladium). Why is this? The rise in bond yields have outpaced
…in fact it is bubbling under the surface
the rise in inflation expectations. In short, real yields have
The main reason for the range-trading appearance is that
moved higher and this is negative for gold. In general, higher
opposing factors are offsetting each other. The movements
yields (especially real yields) is negative for gold and other
within the range show that at some point in time one factor is
precious metals because they below to the group of
more dominant while at another moment the other factor is.
investments that yield zero or almost nothing. We expect real yields to rise further going forward.
What are the opposing factors? The US dollar remains a crucial variable affecting the price of
Higher US real yields weigh on gold
gold and other precious metals. Surprisingly, the weaker dollar
Gold price 5y
has not filtered through to support precious metal prices. For
1,300
US real yields (inverse order)
0.0
us this is a very negative sign as we remain bullish on the US dollar going forward. If they can’t profit from dollar weakness, they will hurt even more when it strengthens. We expect a
0.5 1,200 1.0
restart of the dollar rally in the coming weeks based on betterthan-expected Us data releases
1,100 1.5
Gold negative relationship with dollar 1,000 Jan 15
90-rolling correlation
2.0 Feb 15
1.0
Mar 15
Gold price
Apr 15
May 15
5y US real yields
Source: Bloomberg, ABN AMRO Group Economics
0.5
ABN AMRO forecasts 0.0
End period Gold Silver Platinum Palladium
-0.5 -1.0 10
11
12
13
Gold vs USD Source: Bloomberg, ABN AMRO Group Economics
14
15
Average Gold Silver Platinum Palladium
07-May Close 14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 1,185 1,184 1,100 1,050 1,000 950 1,186 900 850 800 15.7 16.6 16.3 15.0 15.5 16.0 16.5 17.0 17.5 18.0 1,216 1,141 1,100 1,150 1,200 1,250 1,300 1,350 1,400 1,136 798 736 793 650 675 700 700 725 750 750 Q1 15 1,218 16.7 1,194 786
Q2 15 1,142 15.8 1,120 693
Q3 15 1,075 15.3 1,125 663
Q4 15 1,025 15.8 1,175 688
Source: ABN AMRO Group Economics
2015 Q1 16 Q2 16 Q3 16 Q4 16 1,115 975 925 875 825 15.9 16.3 16.8 17.3 17.8 1,154 1,225 1,275 1,325 1,375 707 700 713 738 750
2016 900 17.0 1,300 725