US Fed Decisions To Bust Gold

Looks like the biggest drop in gold prices in several months permeated the precious and PGM markets – nearly every single price point in gold, silver, platinum and palladium markets tracked by the MetalMiner IndX℠ fell last month, as the monthly Global Precious Metals MMI® dropped 5.3 percent to a value of 90 in December.


Because a broader recovery in the US economy (with a revised GDP up 3.6%) pushed investors to reallocate money from gold to equities, and many expected an eventual quantitative easing pullback from the Fed, gold was the big story for the mainstream media. The yellow metal experienced its biggest monthly drop since June (and its worst November since 1978), losing around 6 percent for November and down a quarter of its value so far this year; it’s on track to post its first annual loss in 13 years, according to Reuters.

However, there are competing viewpoints on the gold price forecast.
 
“We think current strong negative sentiment towards the gold price is overdone,” according to Nick Brooks, head of research and investment strategy at ETF Securities. “The gold price should rally if US growth disappoints and thus it provides a good risk hedge if optimistic consensus growth forecasts prove to be wrong.”
 
UBS Investment Research is on the other side of the gold coin, having downgraded its 2014 forecast for average prices, from $1,325/oz to $1,200/oz. “The…forecast reflects the view that the gold market will fluctuate widely as it faces the crosscurrents of an improving macro backdrop, the changing landscape of physical demand and, ultimately, the implications on mine production,” according to the bank. (Key: if the US dollar stays strong and real interest rates rise, expect more downside for gold.)
 
So the obvious question is: where will the global economy go? Brooks thinks that the revised China growth figures moving forward – more 7-8%, less 10-12% – have been already figured into most price expectations. But according to Eurostat’s recent growth figures, the EU economy is losing steam. Watch physical demand from India and China closely, which by all accounts remains strong.
 
Silver Prices and Forecast: The Bigger Story?
Silver prices in the US, Japan and India showed the biggest singular drops on MetalMiner’s monthly precious metals index. UBS “lowered its average price expectations for silver from $25 previously to $20.50/oz for 2014 and from $24 to $21 in 2015,” according to the most recent Precious Metals Note.
 
For silver and gold, much will depend on the US Federal Reserve’s moves in the coming weeks. The Fed’s “Beige Book” showed an improved US manufacturing economy (as we’ve seen from record PMI figures, etc.) over the past 1.5 months, among other sectors, and based on that, the bank will decide at a Dec. 17-18 policy meeting whether to begin pulling back its $85 billion-a-month bond-buying program.
 
Higher PGM Price Rises: Best Bet?
Nothing has dissuaded us from the view that platinum and palladium will continue their longer-term luster. Principally on the macroeconomic side, the results of Beijing’s Third Plenum bode well for continued industrial demand there. US auto sales have been comparatively awesome, good for end-use PGM consumption. And on the supply side, platinum and palladium are still running supply deficits (the biggest in 14 years for platinum).
 
Key Price Drivers of Precious Metals Index:
US silver prices dropped by 10.2 percent this month. The price of Japanese silver closed after dropping 12.7 percent. Following a 6.6 percent decline in price, US platinum bar finished the month down as well. US gold bullion prices fell 6.4 percent, while a 5.6 percent decline hit Chinese gold bullion. Chinese platinum bar was down 5.3 percent for the month.
 
The price of Japanese gold bullion fell 3.2 percent. After rising the previous month, US palladium bar prices dropped 2.7 percent. Japanese platinum bar prices fell 2.7 percent after rising the previous month. Chinese palladium bar prices dropped 2.5 percent.
 
The Global Precious Metals MMI® collects and weights 14 global precious metal price points to provide a unique view into precious metal price trends over a 30-day period. For more information on the Global Precious Metals MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.

by Taras Berezowsky