Yesterday the Gold price hit a three-week high on the back of rising tensions in Ukraine and some technical buying. Yes, it seems the situation in Ukraine is back on trend and is prompting some safe-haven demand.
As we saw previously this will be a short-term driver for gold and will likely provide little support in the long-run. Therefore, until other fundamentals come into play, expect the gold price to drop back once the Ukraine situation has lost the interest of market speculators. This is not unreasonable given ongoing ETF outflows and a slowdown in China’s physical gold demand in the last month.
In bearish news for gold, the Euro dropped yesterday, giving strength to the US Dollar index, after Draghi’s comments that the ECB may look to implement more monetary easing into the Eurozone, this year.
US retail sales data was released yesterday and was better than expected. It appeared to have little impact on the precious metals at the time of the release, however this, combined with the stronger US Dollar index are being attributed to gold’s overnight fall from its three-week high, seen yesterday.
This morning the World Gold Council (WGC) has released a report on China’s gold market. The report, which we will report more on later, suggests that the huge gold imports were not entirely to satisfy domestic demand as had been previously suggested. Instead over 1,000 tonnes is estimated to have been used by Chinese firms as collateral in financing deals.
Westland Bank’s Justin Smirk (Bloomberg’s second most successful forecaster for two years running) has said that gold will under perform other commodities this year as the US Federal Reserve reduces bond purchases. Smirk sees gold prices reaching $1,175 by June and $1,090 by the end of September.
Speaking of low gold forecasts, Goldman Sachs Group Inc (NYSE:GS) reiterated its forecst, which stated that gold will decline this year and will finish 2014 at around $1,050/oz. the bank’s analysts attribute the gold’s strength so far this year to US weather conditions and tensions between Russia and the West.
The supply of Platinum and Palladium has been under close watch so far this year due to ongoing industrial action at South African mines. The geopolitical issue of Russian sanctions has also lead some to be concerned over supply of the PGMs from Russia, given the West’s planned economic sanctions. However, analysts believe that given the shortage of the PGMs in Europe, there is little chance these commodities will face sanctions. This does not mean, however, that there wouldn’t be counter-sanctions from Russia itself, thereby affecting the supply of these much needed metals.
In regard to supply, Standard Bank said yesterday that there may be a lag in supply shortages affecting the price, given the high above-ground inventories for both platinum and palladium. Overall, however, the bank forecasts a 815,000 oz platinum supply deficit for 2014 and a palladium deficit of more than 1.5-million oz.
In response to worries over palladium supply, the futures price hit levels not seen since 2011, yesterday. This news comes after the successful launch of two South African palladium-backed ETFs. In the first fortnight there were inflows of 7.6 metric tons, taking more metal off the open market.