US data to remain key driver of gold prices – Citi

Otmane El Rhazi from The Bullion Desk.

Short-end rates and US forwards are likely to remain the key nearby drivers for gold prices, influenced directly by US data, particularly US labour data, Citi said.

Weak inflation expectations and softer ETF flows have only been partially offset by short-term buying over the past month, putting gold under downside pressure, the bank said in a report on Thursday.

Citi kept its neutral short-term outlook for gold intact – it expects prompt month levels to stay around $1,175-1,225 over the next few months. Spot gold was last at $1,183/1,184 per ounce, largely unchanged from the previous close.

Although a rebound in US economic activity is expected in the second quarter, macroeconomic data has continued to disappoint after a particularly sluggish first quarter, it said. This is pushing back expectations for higher US interest rates toward the end o the year and pressuring the dollar lower.

Meanwhile, supply-side fundamentals remain resilient – African mines have posted healthy first-quarter production results, the bank noted. AngloGold output of 969,000 ounces beat the company’s upper guidance of 940,000 ounces while all-in sustaining costs dropped nine percent to $926 per ounce.

But talks on increased pay by South African unions may weigh on output if negotiations fail to reach a quick conclusion.

In terms of demand growth, India’s appetite is growing, with Swiss gold exports to the Asian country continuing during the wedding season. Shipments to India more than doubled to 72.5 tonnes while exports to China reached 46.4 tonnes in March, the highest since January 2014, the Swiss Federal Customs Administration said.

“This sets a strong foundation for improving demand in the months ahead,” the bank said.

Citi’s bullish expectations for palladium are still yet to play out despite positive fundamentals in the form of strong auto sector demand and slow supply growth.

First-quarter Chinese passenger car production growth at 10.5 percent year-on-year was faster than in the same period in 2014, while first-quarter European auto sales jumped 9.6 percent in the same comparison.

Citi has downgraded its average second-quarter palladium price expectation to $800 from its previous forecast of $850 and its full-year forecast by $35 to $825. Palladium recently traded at $756, up $2.

“However we remain fundamentally positive towards palladium pricing on continued auto demand strength and limited supply growth possibilities,” it said.

(Editing by Mark Shaw)

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