Is Palladium The One To Watch?

Gold fell from its three week high yesterday following the US budget agreement. Holdings in the SPDR Gold Trust ETF (GLD) fell once again, by 0.3% to 833.60 tons, the lowest since January 2009.

Even prior to the budget deal it was clear that the gold price was unfazed by the upcoming two-year budget deal. As for the majority of this half of 2013, the yellow metal appears fixated on the potential taping decision.

The small drop seen in the gold price was most likely due to expectations that the budget agreement will prompt the FOMC to reduce stimulus. Key points of the agreement include a reduction in the deficit, ease automatic spending cuts and will avoid a government shutdown.

The budget agreement removes some of the uncertainty that faced FOMC members in previous meetings, when tapering may have been on the cards. According to many bank analyst’ notes, now there is a stronger case than ever for tapering given the strong economic data and the budget agreement.

It is likely that gold will drift back down to $1,200 prior to the next FOMC meeting, however we remain bullish for 2014 as interest rates will remain low and physical demand continues to be strong.

Later today market participants will be looking out for retail sales and jobless claims data which may set the tone for the rest of the day’s trading.

It’s that time of year again when the majority of the gold price forecasts are coming in from various banks. Generally the view is bearish (surprise) and forecasts range between $1,000 – $1,200. Most attribute the low price to tapering, a tightening of monetary policy and general sentiment towards gold. The most bullish bank so far is Commerzbank who look for prices to end 2014 at $1,400, thanks to revived investment demand and ongoing Asian demand. They do highlight India’s gold control as a key issue.

Is Palladium, the one to watch?

BMO Capital Markets released a report yesterday showing palladium to be its top pick in the metals sector, for 2014. It attributes the expected success to the auto industry performance in both the US and China. The firm writes that they expect auto production in both China and the US “to outpace industrial production in general for the next year or two at least, supporting palladium demand relative to other metals.”

So far this year, any chatter over palladium as surrounded the supply side. Palladium supply in Russia is expected to decline, however the increase in production from South African mines is expected to offset this issue.