ETF Trends
ETF Trends

Precious metal prices saw divergent trends last week, with two of the more industrially-oriented metals – palladium and silver – seeing gains, while gold was whip-sawed by Fed comments and US growth data.

Looking forward, we continue to expect the white metals to outperform on the back of continued improvements in global growth data and supply side constraints on palladium and platinum. The gold price in the near term will likely remain under pressure on perceptions the Fed’s monetary stance will soon become less accommodative and the related strength of the US dollar.

Medium-term, however, strong physical buying by the public and central banks and a reversal of highly stretched short positions in the futures market make a strong case for a gold price rally later this year.

Gold price whip-sawed by perceptions of Fed policy. With the Fed’s policy now tightly tied to highly unpredictable economic data, gold price volatility has increased and technical short-term trading has dominated the futures market.   On this basis there is some scope for bullishness if the patterns of the late 1970s are any guide.  As the chart below shows, the gold price has recently followed a pattern eerily similar to 1976 when a sharp sell-off was not long after followed by a strong rally. And of course not long afterwards the gold price began its dizzying ride to an all-time high in real terms. Perhaps not something to trade on, but worth noting in any case.  In the meantime, perceptions of Fed policy and movements of the US dollar are likely to remain the key short term price drivers.

Palladium price continues to rally on growing South Africa labor concerns. The palladium price gained last week as South Africa supply concerns continue to grow. As mid-year wage negotiations take place in South Africa, labor disputes are expected to continue to rise, crimping an already undersupplied market.  Last week there were violent clashes at a South African chromium mine, resulting in 10 miners being taken to hospital. Markets remain concerned that the unrest will again spread to other mines across South Africa. [Palladium ETFs Lead Metals on Car Sales, Supply]

Key events to watch this week. Official Chinese PMI numbers will help confirm if manufacturing is indeed contracting. After deciding to pause from further increases in asset purchases last week, the Governor of Bank of Japan’s speech will be closely watched. Last week’s Japanese stock market reaction to China’s flash PMI numbers illustrates how fragile sentiment remains. And of course any signs of further labour unrest in South Africa have the potential to move PGM markets.