U.S. payrolls data for February sent precious metals ETFs on a roller-coaster ride, with palladium and silver gaining ground.
The large upside surprise in US non-farm payrolls (+236k vs. +165k expected) on Friday surprised the market. Gold, silver and platinum initially fell steeply reflecting the ‘risk-on’ sentiment of investors who felt that there will be less easing from the Fed with such bullish job numbers. However after some consideration the market realized that loose monetary policy will remain in force for the foreseeable future from the ECB, BOE, BOJ, RBA, BOC who all had policy meetings earlier last week. All precious metal prices reversed most of the initial losses with silver and palladium ending the day higher on the back higher industrial demand expectations.
Also weighing on investors mind is what is store for the rest of this month. March will prove to an important month for US fiscal policy, with the need to pass a mini-budget by the 27th to avoid a suspension of government services. Political paralysis remains the key threat to unwinding the recent optimism in the US recovery, but is not unique to the US, with the Eurozone having its fair share of political problems. With precious metal prices having fallen so much, the cost of insuring against such events looks particularly attractive.
Palladium prices rose without hesitation. Palladium prices rose further on the back of the US payrolls numbers, ending the week 6.7% higher. Stricter pollution emission standards in China are likely to drive palladium demand higher. The Chinese government will reduce carbon emissions and energy use per unit of GDP by at least 3.7% in 2013, the National Development and Reform Commission said in a report last week. The changes favor greater demand for palladium which is used in the manufacture of gasoline autocatalysts that dominate the Chinese market. Palladium net long speculative futures positions, which hit an all-time high in mid-February remain elevated, and may curb further gains. Investors, however, have begun to reduce exposures, with net long positions having been cut by 3,144 contracts since mid-February.
Central bank demand for gold remains strong. Central banks continue to buy gold to diversify their assets away from currencies that are seen to be debasing. South Korea bought 20 tonnes of gold in February 2013 after prices had slid 11% since October 2012. That adds to the 30 tonnes of gold it bought during the course of 2012.
Key events to watch this week . Industrial production indices for US, UK and India will be released and will be watched closely to assess the persistence of the global economic recovery. Strong numbers are likely to confirm the improving growth outlook, providing support to more cyclical commodities. US advance retail sales and Uni of Michigan confidence index will also be monitored as consumer sector’s strength is fundamental for a full recovery of the US economy.
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