160112 precious metals weekly

Group Economics

Precious Metals Weekly

Macro & Financial Markets Research

12 January 2016

Adjustments in forecasts Georgette Boele Co-ordinator FX & Precious Metals Strategy Tel: +31 20 629 7789 georgette.boele@nl.abnamro.com

• Weak start to the year for precious metals except gold prices • We expect gold prices to reach 1,050 USD/per ounce end of March and 900 USD/per ounce end 2016 • We have kept our forecasts for silver unchanged • We expect modest downside in platinum and palladium prices in Q1…

• …and a recovery later in the year Start of the year except gold prices Cyclical precious metal prices have had a dreadful start to 2016; palladium prices dropped by close to 17% and platinum prices have fallen by 6%. Meanwhile, gold prices have moved higher by around 2.5% while silver prices have modestly underperformed the US dollar. Higher gold prices have substantially dampened the decline in silver prices.

Performance precious metals In %, USD as basis

5 0 -5 -10 -15 -20 -25 -30 -35 Palladium

Platinum ytd

Silver

Gold

2015

Source: Bloomberg

Why have palladium prices been so weak? For a start, uncertainty surrounding China has dampened the industrial palladium demand outlook. In addition, the outlook for economies of other emerging markets has remained weak. Furthermore, economic data from the US (manufacturing data) have disappointed as well. All in all, the demand outlook has deteriorated. Moreover, investor liquidation has been ongoing, also accelerated by economic developments and uncertainty in China. Meanwhile, platinum prices have been less weak mainly because a substantial part of investor liquidation has already happened and the demand outlook for Europe (an important market for platinum) has not disappointed. On the other hand, gold prices have had a good start of the year because

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Precious Metals Weekly - Adjustments in forecasts - 12 January 2016

the US dollar stayed under pressure and investors favoured gold somewhat in the current uncertain times. However, if uncertainty about the state of the Chinese economy were to increase, gold prices could move lower because of lower jewellery demand. Moreover, a further deterioration of investor sentiment would also support the US dollar and therefore gains in gold prices will be unlikely. Interesting to note is that over the past 5 years gold prices have had a tendency to strengthen at the start of the year. However, often the move runs out of steam in the third week of January. All in all, we believe that most upside is behind us for gold prices and prices will trend lower from here.

Adjustments in forecasts We have made adjustments to our precious metal price forecasts. We expect gold prices to move lower because of a higher US dollar, improvement in investor sentiment and higher US yields this year. However, gold prices will unlikely reach 975 USD/ounce at the end of March (our previous forecast). Therefore, we have changed our forecast for the end of March 2016 to 1,050 USD per ounce. We have kept our forecasts for silver unchanged. We still expect price weakness in Q1 followed by a recovery afterwards because of a pick-up in industrial demand. In the case of platinum and palladium, we see modest downside in prices from current levels, but we judge that most price weakness is behind us. Speculative investors have closed a substantial amount of net-long positions in platinum and palladium. In addition, total ETF positions have also fallen considerably. Our China growth outlook is in line with market consensus, however we feel that fears about the Chinese economy are overdone. In addition, we expect Chinese imports to improve and global growth to pick up this year, which is supporting the commodity price outlook including cyclical precious metals (platinum, palladium and silver).

Palladium net speculative positions and prices In contracts

Palladium prices

40,000

950 850

30,000

750 20,000 650 10,000

550

0 Jan 14

450 Jul 14 Net positions (lhs)

Source: Bloomberg

Jan 15

Jul 15

Jan 16

Palladium prices (rhs)

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Precious Metals Weekly - Adjustments in forecasts - 12 January 2016

ABN AMRO precious metals forecasts Changes in red/bold New

End period Gold Silver Platinum Palladium Average Gold Silver Platinum Palladium

12-Jan Close 14 1,098 1,185 13.9 15.7 836 1,216 461 798 Q1 15 1,218 16.7 1,194 786

Q2 15 1,193 16.4 1,129 759

M ar-15 Jun-15 1,184 1,172 16.6 15.7 1,141 1,081 736 674 Q3 15 1,126 15.0 993 618

Q4 15 1,104 14.8 908 606

Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 1,112 1,061 1,050 1,000 900 900 950 975 1,000 950 14.5 13.9 13.5 14.0 14.5 15.0 15.5 16.0 17.0 18.0 910 894 850 900 950 1,000 1,050 1,100 800 825 652 562 550 600 625 650 675 700 450 500 2015 Q1 16 Q2 16 Q3 16 1,160 1,056 1,025 975 15.7 13.7 13.8 14.3 1,055 847 813 838 691 506 475 525

Q4 16 925 14.8 875 575

2016 995 14.1 843 520

Q1 17 900 15.3 925 613

Q2 17 925 15.8 975 638

Q3 17 963 16.5 1,025 663

Q4 17 988 17.5 1,075 688

2017 944 16.3 1,000 650

Old

End period Gold Silver Platinum Palladium Average Gold Silver Platinum Palladium

12-Jan Close 14 0 1,185 0.0 15.7 0 1,216 0 798 Q1 15 1,218 16.7 1,194 786

Q2 15 1,193 16.4 1,129 759

Source: ABN AMRO Group Economics

M ar-15 Jun-15 1,184 1,172 16.6 15.7 1,141 1,081 736 674 Q3 15 1,126 15.0 993 618

Q4 15 1,104 14.8 908 606

Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 1,112 1,061 975 950 925 900 900 950 975 1,000 14.5 13.9 13.5 14.0 14.5 15.0 15.5 16.0 17.0 18.0 910 894 775 800 850 900 950 1,000 1,050 1,100 652 562 500 525 550 600 625 650 675 700 2015 Q1 16 Q2 16 Q3 16 1,160 1,018 963 938 15.7 13.7 13.8 14.3 1,055 834 788 825 691 531 513 538

Q4 16 913 14.8 875 575

2016 958 14.1 830 539

Q1 17 900 15.3 925 613

Q2 17 925 15.8 975 638

Q3 17 963 16.5 1,025 663

Q4 17 988 17.5 1,075 688

2017 944 16.3 1,000 650

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Precious Metals Weekly - Adjustments in forecasts - 12 January 2016

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