Global Recovery Supporting Cyclical Precious Metal ETFs

January 14th at 10:34am by ETF Securities

Further signs of an economic recovery are boosting ETFs that track “cyclical” precious metals.

There were a number of positive data releases last week. Chinese export numbers added to evidence that  China’s economy is recovering; the ECB was cautiously optimistic about an economic recovery in the euro area in 2013 and a range of significant new stimulus measures were announced by Japan.

Cyclical precious metals such as silver, platinum and palladium benefiting from the improved macro backdrop. The gold price also rose as the US dollar weakened and investor sentiment improved.

Improving China data help drive cyclical precious metals higher

Chinese exports are reported to have risen by 14% in December 2012, surpassing consensus expectations of only a 5% rise. [ETFs for China's Domestic Rebound]

This data release added to evidence that China’s economy may be rebounding and lifted the outlook for China’s demand for cyclical precious metals. Silver, platinum and palladium ended the week 5%, 4% and 1% higher respectively.

Rate cuts less likely as the ECB expects an economic recovery in 2013

The ECB’s Governing Council unanimously decided to hold rates at last week’s policy meeting. [Euro ETF Jumps After ECB Stands Pat on Rates]

The ECB expects the current low interest rates, improving financial market confidence and strengthening global demand to drive a recovery, but cautioned that to sustain the improvement in confidence governments must stay the course on structural reform and fiscal consolidation.

The euro strengthened on the news, driving dollar lower and pushed precious metal prices higher.

Japan to implement a Y10.3tn stimulus package

The new Prime Minster, Shinzo Abe unveiled a Y10.3tn ($116bn) package to stimulate the economy.

The Prime Minister would also indicated that the candidate to replace the outgoing Bank of Japan Governor must focus on job creation, in a clear sign that further monetary expansion is expected from the BoJ this year.

Precious metals such as gold and silver that serve as store of value assets are likely to benefit from further debasement of the yen. [Currency ETFs: Everyone Hates the Japanese Yen]

Chinese vehicle sales improve, providing a boost to palladium demand

Vehicle sales rose 4.3% in 2012, up from 2.5% in 2011. The China Association of Automobile Manufacturers expects sales to rise 7% in 2013.

While the improvement does not match the double-digit growth seen in 2009 and 2010, the steady improvement is consistent with a soft-landing of the Chinese economy. Palladium is a key component of autocatalysts used in the gasoline-engine dominated auto markets of the US and China. With both US and China growth showing signs of recovery, palladium demand will likely benefit.

Key events to watch this week

Chinese Q4 GDP numbers will help confirm if a hard-landing was averted.

US industrial production data will be closely watched to see if the rebound has maintained momentum.

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