Positive precious metal sentiment shifts up a gear.  Silver led precious metals higher last week, as  global growth data continued to improve. Precious metals also benefited on safe haven buying due to unrest in Egypt and as investors looked for laggard value assets as they rotated out of perceived overstretched equities.

The more industrially-oriented precious metals (palladium, platinum and silver ) we believe will continue to benefit from improving global growth sentiment. With COMEX gold speculative short positions still at extremely elevated levels, physical demand surging, and the gold price trading below its estimated average marginal cost of production, gold reminded us last week of its good value tail risk insurance and diversification benefits .

Gold better priced than equities for Fed tapering? It is interesting to note that the gold price is now back down to around where it was just before the second round of US quantitative easing (QE II) was announced in November of 2010.  The S&P 500, on the other hand is currently trading nearly 40% above its November 2010 level.  On this basis it would appear that the gold market has far more efficiently priced in a tapering of Fed stimulus than equity markets have. Recent outperformance of gold relative to equities indicates that markets may now be coming around this view as well.

PM’s rally despite India tightening restrictions . The precious metals market shrugged off news of an increase in gold, silver and platinum purchasing restrictions in India, the world’s largest gold importer. India’s restrictions have been increased on the back of a widening current account deficit and new historic lows in the Rupee. Reports of a prominent US speculator exiting a large gold position, were also largely ignored, perhaps acknowledging the extent of the bearish sentiment already priced into the market and that physical gold demand remains robust.