Precious Metals Update

GOLD - Rising US interest rates and weak signals from China

After the metal broke through the important mark of 1,100 $/oz, Gold is at a level that was last seen 5 years ago.

While a rate hike by the US-Fed is still expected this year, the last FOMC meeting on Wednesday has not given any clear signal as to whether it will take place in September or December. The development of the US labor market is considered as the most important criterion to determine the effective date. While the current positive data could suggest an early adjustment, other factors such as the low price of oil, rapid losses on the stock markets in China and the euro crisis put pressure on the overall sentiment.

GFMS’ latest quarterly Gold report, which was released last Tuesday, shows an overall restrained demand for Gold. The research firm estimates the global physical Gold demand in Q2 to be at its weakest since 2009. The main reason is a significant slowdown in demand from China, where the jewelry sector was down by more than 23%. A few positive signals came from the German market; low prices attracted buyers and resulted in increasing demand for investment bars. Confidence in Gold as safe haven investment seemed to suffer a setback in recent weeks. ETFs showed significant outflows: with ETF-holdings reduced by more than 2 million ounces between the beginning and end of July.

 

SILVER - Firmer than Gold

Silver takes advantage of its versatile character.

Unlike Gold, an increased demand for silver was recorded in the 1st half year 2015. For the full year 2015, the Silver Institute forecasts a 5% increase in jewelry demand and a 2% growth in demand for industrial applications. The Gold/Silver ratio improved slightly in favor of Silver and is now at 73.50 (July high: 76.50) However, speculative short-positioning at CME has reached a record level. Sudden and abrupt short covering rallies that lead to short-term price gains cannot be ruled out and are even highly probable. Technically, Silver gets solid support around its 2014 low at 14,53 $/oz. Resistance is seen at 15.00 $/oz.

 

PLATINUM - Price stabilizes at low level

After the reduction of speculative long positions, Platinum appears to have stabilized below the psychological mark of 1,000 $/oz.

Similar to Gold, Platinum trades at a price level that could be observed more than 5 years ago. The discount of Platinum to Gold has meanwhile reached 115 $/oz. As long as the support at 970 $/oz is not broken, a price increase to levels of 1.060 $/oz seems to be possible. With prices on such a low level, the pressure on the South African mining industry continues to increase. Two of the largest platinum producers, Anglo American and Lonmin, recently announced restructurings and production cuts in the mid-term, however, opinions differ as to whether these measures could be implemented in due time. Political pressure on the miners as a critical industry sector, combined with the producers’ need to upkeep cash-flow, could be limiting factors. Sponge premiums on a low level reflect restrained industrial demand for Platinum. Some positive news comes out of China; for the first time since mid-June, increased buying interest could be observed at the SGE.

 

PALLADIUM - Palladium with cautious outlook

Weak forecast for China’s auto market puts the metal under pressure. Trading ranges between 608.50 $/oz and 631.50$/oz

While Palladium outperformed the other precious metals last year, the metal now suffers heavy losses. Since March 2015 the price fell by 25%, mainly due to increasingly subdued outlook for automotive production in China, the important growth market for gasoline engines.

Support for Palladium is currently around 613 $/oz, resistance at 653 $/oz, but the 600 $/oz mark looms on the horizon. Restrained industrial demand might be an indicator that buyers wait for prices below the psychological mark of 600 $/oz. 

 

RHODIUM, RUTHENIUM, IRIDIUM - Mid-term sentiment negative

Difficult situation of the South African mining industry does not stop at Minor PGMs.

Despite a relatively limited primary supply and a good physical demand at the same time from major consumers such as the automotive and chemical industries, the Rhodium price has come under heavy pressure. The trading environment can be described as nervous and difficult, investors are partly active to liquidate positions. The Rhodium market shows a volatility that has not been observed for quite some time.

The largest industrial consumer of Ruthenium is the electronics industry for storage media. Despite high metal availability and prices on a low level, very little demand can be observed. There is a strong interest among consumers for price hedges, however, few transactions are closed. The Iridium market remains relatively quiet. Physical demand for the metal remains restrained. Nevertheless, the low prices barely induce market participants to hedge prices.

 

Have a great week!

 

Martina Fischer
Head of Marketing & Communications

 

Global Business Unit

Heraeus Metal Management

Marketing & Communications

 

Heraeus Deutschland GmbH & Co. KG
Heraeusstrasse 12-14

63450 Hanau, Germany

 

Phone: + 49 6181 / 35-9648

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