Buying opportunity in palladium but gold to lose steam – Barclays

Otmane El Rhazi from The Bullion Desk.

The underlying fundamentals in palladium remain strong and recent losses provide a healthy buying opportunity, while gold is likely to lose steam, Barclays said.

The price of the metal has fallen five percent in the year to date, falling below $770 to around $761, which represents a healthy buying opportunity, the bank said in a note on Monday.

Although “disinvestment and concerns over China have scope to weigh on palladium in the near term… the underlying fundamentals look attractive”, it said.

Palladium ETP holdings have started the year on a weak note, with net redemptions of 25,100 ounces, but speculative positioning has been unchanged. Platinum metal held in trust has also fallen 15,300 ounces while speculative positioning has risen modestly.

Demand from the auto-industry continues to underpin PGM prices, in particular palladium, which is used in autocatalysts in petrol engine cars. US light vehicle sales on an annually adjusted rate (SAAR) basis of 16.9 million in 2014 was up nine percent year-on-year, lifting full-year sales 5.2 percent to 16.52 million for the strongest year since 2006.

“Our auto analysts expect SAAR to remain at 16.5-17 million over the next 3-4 years as upside from credit availability and potentially higher incentive spending could offset lower demand due to demographics and youth ownership trends,” the bank noted.

In China, however, shipments of palladium fell 57 percent year-on-year and 15 percent month-on-month to just 34,700 ounces, the lowest since October 2012. Year-to-date shipments are still up 27 percent, however.

In gold, despite the price rising nearly eight percent so far this year, the metal is unlikely to sustain these levels without a structural shift in sentiment and broad investment demand, Barclays said.

“Although we expect the first quarter of 2015 to be the strongest for gold in light of physical demand ahead of the Lunar New Year as well as the recent safe-haven buying, current prices are approaching toppy levels,” it said.

“On the downside, support has increased with continued appetite to buy from China, but India’s interest has become more lacklustre,” it added.

The latest cost curve for the third quarter of 2014 shows average all-in sustaining costs rising to $950 per ounce from $941 in the second quarter. The marginal cost of production, however, fell to $1,245 per ounce from $1,285.

Producers have benefitted from a stronger dollar; fourth-quarter data will also reveal the effect of lower oil prices, Barclays said.

“We believe the underlying trend is higher since fuel makes up about 10 percent of cash costs,” it said.

(Editing by Mark Shaw)

The post Buying opportunity in palladium but gold to lose steam – Barclays appeared first on The Bullion Desk.