Market stories inside precious metal trading these days are not written about enough. The rising stock market has been taking up most headlines. It pays to take a look behind the precious metal curtain, periodically, and see what is happening.
Three Zacks Rank #1 ETF precious metal funds are:
- FGLDX, Invesco Gold & Precious Metals Fund
- RYPMX, Rydex Precious Metals Investment Fund
- OPGSX, Oppenheimer Gold & Special Minerals Fund
Here is what is going on:
Prices have fallen in 2013, as an improved outlook for U.S. jobs boosted its stock market, and lowered demand for ‘risk-off’ assets like gold. The near-term outlook hinges largely on monetary policy and USD currency movements. In Dec-12, the U.S. Fed introduced its “economic thresholds” to guide $85B a month in bond buying.
An upward gold price push to $1750 a troy ounce is still expected by the London consensus through the end of 2013. Safe haven purchases of gold by investors could remain high due to uncertainty in Europe. Any rebound in the Chinese economy helps gold prices. Indian demand is set to moderate. It’s government sought to reduce a record current account deficit by increasing the import duty on gold by 2% to 6% on Jan. 21.
Here is a recent note from Deutsche Bank. “That the U.S. appears the picture of stability and relative strength, has in our view, been a key contributor to the moribund performance of gold. Over the past month [of March 2013], gold ETF holdings have fallen over 6%, representing a liquidation of around 5 million ounces — the largest draw-down on record.”
A broad range for gold appears to be between $1550 a troy ounce and $1800 a troy ounce.
Silver’s price dipped below the $30 a troy ounce mark at the start of 2013. Prices recovered in January to reach $35, after the U.S. fiscal cliff deal was announced. However, silver prices have cooled sharply again, as the USD, the currency in which silver trades, has strengthened.
These days, silver appears to generate stronger price moves than gold. Much depends on the broad U.S. outlook and movements in USD. China is the second largest silver market. Any upbeat industrial production data bodes well for silver demand in 2013.
Platinum prices rallied throughout Jan-13 and the first half of Feb, hitting a peak of $1730 a troy ounce in March, before retreating. Supply concerns drove the gains. The world’s largest platinum producer, Amplats, announced plans to slash output by -13% per year following labor unrest in South Africa and significant production losses in 2012.
Strong U.S. and global auto sales strengthen the value of platinum, which is used in catalytic converters in Europe and the U.S. U.S. demand for platinum may increase after new car sales jumped +14.2% y/y in January. The euro zone is the weakening region.
Palladium was the best performing precious metal in Q4-12. It extended its gains in early 2013, hitting a recent high of $773 per troy ounce in Feb. The Chinese government is currently trying to combat dangerously high levels of pollution in its major cities. Demand for palladium in China could soar, as unlike in Europe, it can be used in emission control autocatalytic converters.
Palladium supply trailed demand by the greatest level in over a decade in 2012, due to earlier strikes and safety stoppages in South African mines, as well as reduced sales from Russian stockpiles. Palladium can be subject to supply concerns, due to only two major sources: Russia produces 51%, South Africa 35% of world output. On top of that, South Africa and Russia plan to form an OPEC-style cartel to coordinate exports of platinum and palladium.
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