Gold, PGM prices to resume downward trends – ANZ

Otmane El Rhazi from The Bullion Desk.

Gold and other precious metals prices are set to resume their downward trends in the near term, ANZ said in a report.

While there was a brief respite from earlier weakness after the US Federal Reserve’s ‘dovish’ meeting in March, the bank expects the effects to be temporary.

“A positive turnaround is US economic data is key, supporting a higher USD and lower gold price,” it said.

The spot gold price was last at $1,188.40/1,189.20 per ounce, up $1.50 on Wednesday’s close.

Both the macroeconomic environment and the dynamics of the physical market remain unsupportive of precious metals prices, ANZ noted.

“In China, our analysis suggests that high imports in the final quarter of 2014 were not met by demand. This has resulted in an onshore stock-build that will take months to work through,” it said.

Consequently, adequate inventories in China should mean that import demand underperforms for at least the next few months, it added. Onshore premiums in the two major gold markets of China and India also indicate there is no shortage of gold in the domestic markets.

China’s retail demand for physical gold dropped to a two-year low of 199 tonnes in the quarter compared with an estimated 487 tonne increase in physical supply.

“The resulting near-300 tonne increase in stocks is expected to weigh heavily on import demand,” ANZ said

Also, the mild pace of growth in Chinese jewellery retail sales in the early months of the year and over the Chinese New Year suggest that demand is subdued and the stock overhang will take time to work through.

Indian demand also looks soft, the bank noted, while premiums remain stable.

“Traders continue to hope for a cut in the gold import duty of ten percent, which could be holding back purchases for now,” it said.

Also, gold exchange-traded funds have seen liquidation because of declining prices. Since mid-February gold investors have sold 60 tonnes of gold, taking total gold-backed ETF holdings to 1,615 tonnes.

But holdings have actually risen about 25 tonnes in the year to date owing to the sharp increase in the early part of the year when geopolitical risks around Greece first emerged, ANZ noted.

In derivative markets, positioning and expectations have not shifted significantly though mild short-covering by speculators has supported gold.

Meanwhile, platinum group metals (PGMs) continue to struggle although ANZ expects that palladium’s relative outperformance to platinum will continue.

The PGMs also continue to succumb to mild liquidation of ETF holdings. Platinum and palladium ETFs have seen outflows of 80,000 ounces and 174,000 ounces respectively in the year to date, coinciding with respective spot price declines of 5.5 percent and 3.5 percent.

Platinum was last up $4 at $1,129/1,134 per ounce as was palladium at $755/760.

(Editing by Mark Shaw)

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