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Metals Focus Precious Metals Investment Focus 2017/2018
Degussa. Proud sponsors of Precious Metals Investment Focus 2017/2018 The Degussa name is synonymous with quality and durability unsurpassed in the world of precious metals. Today, this rich history and tradition is carried by Degussa Goldhandel GmbH. As an internationally operating company handling gold, silver and platinum metals, Degussa is Europe’s market leader among independent precious metal traders. In addition to headquarters in Frankfurt am Main, Degussa ofers its extensive range of bullion products at ten locations in Germany as well as at its international branches in London, Singapore, Zurich, Geneva and Madrid. Our bullion showrooms are complemented by the online Degussa webshop which ofers a fast, easy and lexible way of investing in precious metals. Investment gold, for example, can be purchased at the highest purities in either bar or coin form, and in a wide variety of weights to suit all needs. With such passion for precious metals, Degussa also creates attractive objects from precious metals that make life more beautiful. The Degussa gold gift collection combines master craftsmanship with the real intrinsic value of precious metals and comprises jewellery, watches, statues, gift bars etc. Degussa furthermore ofers services such as buying gold scrap, secure storage, numismatics and a gold savings plan. The employees working for Degussa are all absolute experts in their ield, many with a banking background. On the precious metals purchase side, Degussa is stafed with craft-trained men and women, master goldsmiths and watchmakers among others. Many of the employees have decades-long experience in precious metals trading, logistics and processing. Degussa – passion for precious metals. Wolfgang Wrzesniok-Roßbach Chief Executive Oicer
London Metal Exchange. Proud sponsors of Precious Metals Investment Focus 2017/2018 At the London Metal Exchange (LME) we have long held strong and positive relationships with the precious metals community. We’ve recently broadened the ofering for this market with the launch of LMEprecious – our collaboration with the World Gold Council and a group of leading industry players - introducing an innovative suite of precious metals products. LMEprecious provides the market with reliable and liquid tools for price discovery, trading and risk management with loco London delivery. Traded on-exchange, physically settled and centrally cleared, LME Gold and LME Silver combine spot pricing with daily and monthly futures out to ive years. The next phase of LMEprecious will deliver platinum and palladium futures, along with options contracts for all four metals. When you’re searching for opportunities in precious metals look no further than the London Metal Exchange. Email: lmeprecious@lme.com Web: lme.com/lmeprecious
Precious Metals Investment Focus 2017/2018
Metals Focus
Precious Metals Investment Focus
2017/2018
PRODUCED BY
Philip Newman
Nikos Kavalis
Oliver Heathman
Neil Meader
Philip Klapwijk
Junlu Liang
George Coles
Peter Ryan
Elvis Chou, Taipei
Chirag Sheth, Mumbai
Çagdas Küçükemiroglu, Istanbul
Yiyi Gao, Shanghai
Gary Gong, Shanghai
Madeleine Hinton
Daniel Macfarlane
Pete Roberts
WITH THE SUPPORT OF
Charles de Meester
Carmen Eleta
Neelan Patel
Lisa Mitchell
Unit T, Reliance Wharf, 2-10 Hertford Road, London, N1 5ET
Telephone: +44 20 3301 6510, Email: info@metalsfocus.com
Bloomberg Metals Focus Launch Page: MTFO
Bloomberg chat: IB MFOCUS
www.metalsfocus.com
ISBN : 978-0-9935876-8-9
Precious Metals Investment Focus 2017/2018 About Metals Focus Metals Focus is one of the world’s leading precious metals consultancies. We specialise in research into the global gold, silver, platinum and palladium markets, producing regular reports, forecasts, proprietary data and bespoke consultancy. The quality of Metals Focus’ work is underpinned by a combination of top-quality desk-based analysis, coupled with an extensive program of travel to generate ’bottom up’ research for our forecasting reports and consultancy services. Our analysts regularly travel to the major markets speaking to contacts from across the value chain from producers to end-users, to obtain irst hand and unique information for our reports. Copyright, October 2017 This Report (or any part of this Report) must not be reproduced, distributed, transmitted or communicated to any third party without express written consent from Metals Focus Ltd. In cases where the Report has been provided electronically, only the authorised subscriber, in respect of whom an individual user licence has been granted, may download a copy of this report. Additional user licences may be purchased from Metals Focus Ltd on request. The commission of any unauthorised act in relation to the work may result in civil or criminal actions. Disclaimer Unless otherwise stated, Metals Focus Ltd are the owner or the licensee of all intellectual property rights in this Report. This Report (including any enclosures and attachments) has been prepared for the exclusive use and beneit of the addressee(s). Nothing contained in this Report constitutes an ofer to buy or sell precious metals or related securities or investments and nor does it constitute advice in relation to the buying or selling of the same. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content of this Report. Whilst every care has been taken in preparing the information published in this Report, Metals Focus Ltd does not guarantee the accuracy or currency of the content. Metals Focus Ltd does not accept responsibility for any errors or omissions and accepts no liability for any loss or damage howsoever arising, nor to any third party in respect of this Report.
Precious Metals Investment Focus 2017/2018
Metals Focus would like to thank the sponsors
of the Precious Metals Investment Focus for
their generous support.
www.degussa-goldhandel.de www.sharpspixley.com www.LME.com/lmeprecious
www.cmegroup.com/precious www.perthmint.com.au DillonGage.com
www.idelitrade.com www.asahireining.com
rsbl.co.in www.bseindia.com
Precious Metals Investment Focus 2017/2018
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www.jltspecialty.com www.bairdmint.com www.ashokaglobal.ae
www.bloomberg.com symposium.net.au
www.terrapinn.com graniteshares.com
Precious Metals Investment Focus 2017/2018
Contents
1. Executive Summary 7
Introduction 7 Gold 8 Silver 8 Platinum 9 Palladium 9
2. Price and Market Forecast 11
Introduction 11 Gold 12 Silver 12 Platinum 13 Palladium 14
3. Price Review 16
Introduction 16 Gold 16 Silver 20 Platinum 22 Palladium 24
4. Mining Equities 26
Introduction 26 Gold Mining 28 Gold-Silver & Silver Mining 34
Platinum Group Metal (PGM) Mining 38 Streaming & Royalty Equities 42
Focus Box: Mining Equities Proile 27
Focus Box: Streaming & Royalty Companies’ Proile 42
Focus Box: Precious Metal Mining Indices 43
Focus Box: Precious Metal Mining Funds & ETFs’ Proile 44
5. Exchanges & OTC Market 47
Introduction 47 Gold 48 Silver 53 Platinum 55 Palladium 56
Focus Box: Commodity Exchanges Proile 47
Focus Box: Precious Metals in the Over-the-Counter and Allocated Metal Account Markets 50
Focus Box: The New Era for Gold Benchmarks 52
6. Exchange Traded Products 58
Introduction 58 Gold 59 Silver 59 Platinum & Palladium 62
Non-physically Backed and Basket ETPs 63
Focus Box: Precious Metal ETPs Proile 58
7. Physical Investment 64
Introduction 64 Gold 66 Silver 71 Platinum & Palladium 76
Focus Box: Physical Investment Proile 64
Focus Box: The Changing Dynamics of Indian Physical Investment 67
Focus Box: Precious Metals Retirement Accounts 72
Focus Box: Gold Jewellery as a Form of Investment 75
8. Appendices 78
Precious Metals Investment Focus 2017/2018
Chapter 1 Executive Summary
– In spite of a broadly favourable economic Introduction
backdrop, growth in precious metals In many ways, the global macroeconomic and geopolitical backdrop has
investment has been limited in 2017. been positive for gold and the wider precious metals complex in 2017.
Monetary policy has remained accommodative across all major currencies,
– Net investor longs in futures recorded with real and in many cases even nominal short term interest rates having
decent gains, but these are against been negative throughout the year. Focusing on the all-important US
relatively light positioning at the start of monetary policy, the year saw market consensus increasingly question
year following heavy sell-ofs in late 2016. both the speed and extent of forthcoming policy rate hikes. In contrast,
investors have been eyeing the possibility for the ECB tightening cycle to
– ETP demand has grown modestly, aside commence. Meanwhile, the euphoria that Mr Trump’s election had fuelled
from a decline in the palladium market. initially has in large part dissipated, as the new administration has failed
to deliver on some of its most widely publicised plans. Related to these
– Bar and coin sales have fallen for silver and points, the dollar has spent much of the year in a downtrend.
platinum, with gold rising modestly.
The year has also seen a lurry of geopolitical tensions. Among these,
North Korea’s nuclear weapons programme and increasingly incendiary
comments out of both that country and the US stand out. In Europe,
the irst few months of the year saw growing concerns about the rise of
populism within Europe, though the outcome of the elections that took
place in the year has helped ease these fears. Finally, the unconventional
nature of President Trump and his confrontational comments towards a
number of traditional allies of the US create a wider feeling of uncertainty.
With all this in the background, one may wonder why precious metals
prices have not fared better. Other than palladium, that has beneited
from its strong fundamentals, price performance for the sector may have
2017 Precious Metals Price
disappointed. Gold, for example, has trended up over the year, but failed to
Performance break its 2016 peak and it looks like the full year average will be a mere 2%
Index* higher y/y. Silver and platinum, meanwhile, have been moving sideways for
most of 2017, the latter heading towards a full year average decline.
150
140 Behind such lacklustre performance lies a reticence by professional
investors to move into gold. In large part, this relates to the lack of an
130
obvious trigger for material price upside in the short to medium term.
120 Other than that, investors clearly appreciate that tail-risks abound,
including a major equity market correction, the North Korean war of words
110 spiralling into full blown military conlict or a liquidity crisis erupting in
China. However, the probability of each event is seen as low. Importantly,
100
given the continued strength of equity markets, investors are mindful of
90 the opportunity cost of exiting that ield too early, even in part.
Jan-17 Apr-17 Jul-17
Looking ahead, we believe that this backdrop represents both a headwind
Gold Silver
and opportunity for precious metals. On the one hand, unless one of the
Platinum Palladium
risks crystallise, it is diicult to see mainstream investors returning to the
*Index, 2nd January 2017 =100 space in a large way. On the other, given their limited involvement in gold
Source: Metals Focus
and, in contrast, their extended positioning in equities, when the expected
7
Chapter 1: Executive Summary Precious Metals Investment Focus 2017/2018
Five-Year Precious Metals Price correction in the latter comes, this should result in hefty inlows into gold
and, to some extent, also other precious metals.
Performance
Index* Gold
160 This September, improved investor demand saw gold touch a 13-month
high of $1,358, generating an intra-year gain of around $200. This however
140
came short of the 2016 high, and was followed by liquidations that took the
120 price down to the $1,280s. Through to the price peak, investors’ net long
Comex positions more than doubled intra-year to 25Moz (787t), while ETP
100 demand rose by 9% this year to 69.0Moz (2,145t). OTC positions, however,
seem to have seen modest inlows. Overall, these relatively modest gains
80
relect the aforementioned lack of conviction among large investors.
60 While there is recognition of a generally supportive macro and geopolitical
backdrop for gold, many institutional investors have not returned to the
40 market. Some of the gap has been illed by machine-driven funds, that
Sep-12 Mar-14 Sep-15 Mar-17
normally lack long-term commitment to one market.
Gold Silver
Platinum Palladium One silver lining of investors’ reticence is the light positioning and, given
the uncertain macroeconomic backdrop, gold’s price outlook can still be
* Index, 3rd September 2012=100
seen to have good potential. It was also signiicant that gold established
Source: Bloomberg
a series of higher lows this year, which may encourage those professional
investors mindful of a still broadly unsupportive supply/demand backdrop.
Mine output in 2017 for instance remains near record highs, while jewellery
fabrication continues to languish at multi-year lows. Although investors
have watched Indian imports improve sharply, this compares with an
exceptionally weak 2016. Furthermore, this upturn is being ofset by
Value of Global Physical uninspiring demand in other key markets, notably China. One positive
Investment in 2017* ($47.6Bn) development within the physical market is the expected rise in retail
investment this year. Even so, a 5% lift is modest and the global total
Platinum ($0.3Bn) remains signiicantly lower than over 2010-13. The increase comprises a
Silver ($3.0Bn) dramatic rise in the Middle East, plus modest gains in Europe, India and
East Asia, which are nearly ofset by a slump in the US (the latter relecting
disillusionment with gold’s lack of price action for much of 2017).
Silver
This year so far, silver has underperformed gold, with the former rising
by less than 10%. This may surprise as silver’s strong, but more volatile,
relationship to gold tends to see it outperform in a rising market. Instead,
silver has struggled, with levels today some 20% down on last year’s
highs. In particular, silver had to contend with a mid-year drag from a
Gold sell-of in some industrial metals. Moreover, silver has sufered from its
($44.3Bn) disadvantage over gold, in that the wealth management sector, that have
been buyers this year, typically favours gold. Aside from the drop in coin
NB: Value of palladium retail investment in 2017 is forecast
and bar demand, interest in silver ETPs has been mixed; having seen
to be $0.02Bn; *based on Metals Focus’ demand and
prices forecasts
global holdings hit a record high in July of 682Moz (21,216t), a subsequent
Source: Metals Focus retreat saw these gains wiped out. Similarly, net Comex longs achieved a
record high in April of 584Moz (18,169t), but have since fallen quite sharply.
However, even if an under-performer this year, we still believe that silver
is likely to rally strongly looking further out, when the case for precious
metals’ upside becomes clearer.
8Precious Metals Investment Focus 2017/2018 Chapter 1: Executive Summary
Value of ETP Holdings at Platinum
The rise in some areas of platinum investment could be viewed as a sign
end-August 2017 ($113.1Bn)
of improved sentiment. In particular, net Nymex long positions have risen
Palladium ($1.5Bn) 34% intra-year to 1.9Moz (60t), which has made up for a muted rise in ETPs
Platinum ($2.4Bn) (+2% to 2.4Moz, 75t). However, the gains in the futures market need to be
Silver ($11.7Bn) set against a sharp drop in late 2016. Moreover, this compares poorly with
net long gold positions (+115%). That the growth in platinum investment
has fallen short relects its challenging supply/demand conditions.
Looking at these in some detail, meaningful cuts in South African output
continue to look unlikely, hence our 2017 forecast of a mere 1% fall in
global mine supply. More important than the lack of producer discipline is
investors’ take on the outlook for demand. This relates to the challenges
facing European light duty diesel sales. It is worth remembering that the
Gold light duty diesel segment of autocatalyst demand accounts for over a
($97.5Bn) quarter of global platinum oftake. Until recently, rising overall car sales in
Europe and higher loadings, due to the implementation of Euro 6 emissions
Source: World Gold Council, Bloomberg, Metals Focus limits, have ofset the impact of this loss of market share. However this is
changing. Already, for 2017 and 2018 we are forecasting 1% and 3% y/y
declines in platinum demand from the auto sector. This trend seems likely
to continue and it is a major concern for investors. We also forecast a
marked drop in coin and bar demand this year. Overall, platinum investors
must therefore contend with a growing physical surplus, which is also set
to continue for some years to come. Returning to this year, this will result in
further growth to already sizeable above-ground stocks which, by end-
2017, are estimated to reach some 9Moz (270t).
Value of Net Long Positions* at
end-August 2017 ($42.9Bn) Palladium
The strength in the palladium price has been nothing short of impressive;
Palladium ($2.3Bn) it has clearly been the best performer across the precious metals so far,
Platinum ($2.0Bn) rising by more than 30% intra-year. The scale at which it has gained ground
on platinum has also focussed attention, with palladium moving to a
Silver
($5.8Bn) premium over platinum in late September, for the irst time since 2001.
This relects palladium’s strong fundamentals, characterised by physical
deicits since 2012. These have seen above-ground stocks fall from 18Moz
(560t) at end-2010 to an end-2017 forecast of 14Moz (430t). In addition,
investor interest in palladium has grown following Trump’s victory, seen as
a boost to pro-cyclical assets. This has been relected in the strong inlows
into Nymex investor positions over the year. In contrast, ETP palladium
Gold holdings are down year-to-date, suggesting some of the longer-term
($32.8Bn)
investors in the metal decided to take advantage of rising prices and take
some proit. Meanwhile, the over-the-counter and physical markets have
*Net long investor positions in Comex/Nymex futures
seen investor buying, including continued speculative purchases in China.
(basis non-commercial plus non-reportable open
interest).
These contributed to a liquidity squeeze mid-year that, while only brief,
Source: CFTC, Metals Focus served as a warning for future potential tightness. Looking ahead, there is
a risk that some of the inventory that has been moved to China will be sold
and this would weigh on palladium. Even so, this would be a short-term risk
and would not detract from the metal’s strong fundamentals, which should
maintain investor interest.
9Precious Metals Investment Focus 2017/2018
Chapter 2 Price & Market Forecast
– Gold prices are forecast to rise 10% y/y Introduction
to an average of $1,400 next year, as low On balance, we believe that the wider macroeconomic backdrop remains
interest rates and disappointment about positive for precious metals prices through to 2018. Crucial to this view
US equities encourage investment. is that monetary policies are likely to remain accommodative, with most
major currencies seeing negative real rates for some time to come.
– Silver will be lifted by gold, with the 2018 Meanwhile, we believe that the downtrend that the US dollar has seen for
average forecast to hit $20.60, up 18% y/y. much of the year will continue. Last but not least, we believe a US equity
markets correction is likely within the next twelve months.
– Platinum will also enjoy positive spill-overs
from gold, rising to $1,090 (+12% y/y). The gold price will be the main beneiciary of these conditions, but
silver and, to a lesser extent, platinum should also beneit. For silver and
– Palladium’s rally is expected to slow, but platinum, the forecast year-on-year price rise will be higher than for gold
a new record annual average of $880 is in 2018. In part, this relects their underperformances this year and so we
forecast for 2018. expect both to make up some lost ground. The fact that the size of the
white metal markets are much smaller and hence less liquid than gold will
mean that speculative demand will have a more pronounced impact on
prices. Finally, palladium is projected to post the smallest price rise in 2018
among the four metals, but this is against a new all-time high this year.
Precious Metals Historic Spot Prices and Quarterly Forecast, US$/oz
Gold Silver
1,450 23
21
1,350
19
1,250
17
1,150
15
1,050 13
Jan-16 Jan-17 Jan-18 Jan-16 Jan-17 Jan-18
Platinum Palladium
1,300 1,000
1,200 900
1,100 800
1,000 700
900 600
800 500
700 400
Jan-16 Jan-17 Jan-18 Jan-16 Jan-17 Jan-18
Source: Metals Focus, Bloomberg. Forecast prices are quarterly averages.
11Chapter 2: Price & Market Forecast Precious Metals Investment Focus 2017/2018
Gold Supply & Demand Gold
Metals Focus expects the global macroeconomic environment to remain
Moz 2016 2017F 2018F
generally favourable for gold investment and hence prices for the rest
Supply of 2017 and well into 2018. Of course, the prospect of one further rate
Mine Production 104.9 104.2 104.1 hike in late 2017, two to three more in 2018 and the start of balance sheet
Recycling 41.7 38.6 39.5 normalisation by the Fed poses headwinds for the metal. However, the
Net Hedging Supply 1.1 0.3 - speed at which monetary authorities move towards ‘normal’ monetary
Total Supply 147.7 143.1 143.7 policies will continue to be slow and probably no faster than markets are
currently pricing in. Even assuming inlation remains at current levels,
Demand this will perpetuate the current negative or low short-term real interest
Jewellery 64.0 63.9 65.0 environment in the US. Meanwhile, negative rates are also seen across
Industrial 10.4 10.5 10.7 other key currencies, importantly including the euro, even taking into
Physical Investment 33.1 34.8 35.9 account the growing likelihood of the ECB starting to tighten policy in the
Net Hedging Demand - - 0.6 near future.
Oicial Sector Purchases 12.5 11.9 11.3
Total Demand 120.0 121.0 123.5 Another key driver behind the forecast return of investor interest in gold
will be the future performance of the US economy, which we believe is
Market Balance 27.7 22.0 20.1 likely to fall short of expectations. Looking ahead, we are sceptical about
Gold Price (US$/oz) 1,251 1,275 1,400 the current US administration’s ability to raise infrastructure spending, cut
taxes, reduce regulation and renegotiate trade deals, and this is likely to
Source: Metals Focus
generate further disappointment. Importantly, we believe that all this will
eventually result in a sizeable correction to US equities, prices for which
have looked excessively high for some time now.
The above alone should ofer gold a boost later in the year and into the
US Inlation
next. The likelihood for geopolitical risks to remain in the background
should also help. As the opportunity cost of investing in gold remains
%
relatively low, we believe that institutional investors will once again be
6
convinced by the positives.
5
4
In contrast, the scope for a rise in the gold price stemming from
3
developments in the physical markets seems far less compelling. Total
2
supply, for instance, is forecast to rise marginally, as irming prices
1
0
encourage a modest rise in recycling. On the demand side, jewellery
-1 oftake is expected to bottom out this year, before recording its irst annual
-2 gain in ive years in 2018. However, overall volumes will remain relatively
-3 low by historical standards. As a result, the market is expected to remain
2008 2010 2012 2014 2016 in a sizeable surplus next year, although these excess supplies should be
easily absorbed by institutional investors.
CPI Urban Consumer
PCE Core Price Index
Silver
Source: Bloomberg
With its close link to gold, silver is projected to beneit from a recovery in
investor interest in safe haven assets. Given the relatively light additions to
investor positions so far in 2017, this should leave scope for healthy gains
next year. In addition, the fact that the size of the silver market is smaller
and hence less liquid than gold will amplify the impact of speculative
interest on the price. With these factors in mind, we forecast silver to
average $20.60 next year, with the gold:silver ratio falling to the mid-60s in
the fourth quarter of 2018.
12Precious Metals Investment Focus 2017/2018 Chapter 2: Price & Market Forecast
Silver Supply & Demand In contrast to our bullish expectations for institutional investment next
year, it is diicult to argue that silver will enjoy much support from supply-
Moz 2016 2017F 2018F
demand developments. For the third year in a row, the silver market is
Supply expected to remain in a fundamental surplus of around 70Moz. The main
Mine Production 888 857 867 disappointment remains physical investment, the key culprit for the silver
Recycling 161 161 162 market moving into a major surplus over 2016-17. Even though demand for
Government Sales 1 1 1 bars and coins is expected to recover next year, this is against a low base,
Net Hedging Supply - 5 15 with the global total still the second lowest this decade. In essence, this
Total Supply 1,051 1,024 1,045 relects the ongoing weakness in the US and India.
Demand A more positive picture is expected for fabrication (excluding bars and
Industrial 487 502 509 coins), as industrial oftake is forecast to grow by 2% to a new all-time
Photography 38 36 34 high, thanks to rising end-use in a wide range of sectors such as solar
Jewellery & Silverware 234 244 251 and automotive. Jewellery and silverware oftake is also forecast to grow,
Physical Investment 212 170 184 though we expect these gains will be modest because of projected price
Net Hedging Demand 12 - - rises causing damage in such countries as India. Jewellery will also receive
Total Demand 985 952 979 a beneit from structural change in the West and China, as higher margin
styles gain market share, making consumption more price inelastic. On the
Net Market Balance 66 72 66 supply side, a marginal rise in mine output and a recovery in recycling will
Silver Price (US$/oz) 17.14 17.60 20.60 see total supply record its irst annual increase in four years.
Source: Metals Focus
Platinum
Our forecast recovery to an annual average price of $1,090 next year is
almost entirely down to platinum’s positive correlation with gold. Even
so, the expected 11% rise may surprise as that means platinum will
outperform both gold and palladium. However, it is worth stressing that
Platinum Supply & Demand
this is against low prices in 2017. Platinum is the only precious metal on
Koz 2016 2017F 2018F
track to record successive price losses in 2016 and 2017 (basis annual
Supply averages). In addition, relatively light positioning in futures creates the
Mine Production 6,209 6,153 6,026 prospect for these positions to grow. In a small market, this could therefore
Recycling 1,826 1,898 1,981 have a greater impact on platinum prices than is the case elsewhere.
Total Supply 8,035 8,051 8,007 Finally, even though platinum’s poor fundamentals are weighing on
investor conidence, much should already be factored into current prices,
Demand although their negative impact could easily reappear looking further out.
Autocatalyst 3,334 3,305 3,217
Jewellery 2,308 2,302 2,311 Despite some 50% of the South African platinum industry being loss
Industrial 1,713 1,795 1,821 making during 2016 on an AISC basis, we do not believe this will translate
Physical Investment 628 266 209 into steep production cuts in the foreseeable future, given the high
Total Demand 7,983 7,668 7,557 unemployment rate in the country and potential political pressures
closures would lead to. This situation, along with a modest rise in
Net Market Balance 51 383 450 autocatalyst recycling, will keep annual platinum supply above 8Moz per
Platinum Price (US$/oz) 989 970 1,090 annum during 2017-18.
Source: Metals Focus
On the demand side, we expect to see little change next year in the global
total. Autocatalyst demand is expected to disappoint, with a second
consecutive decline. Moreover, its questionable long-term outlook, in
the face of diesel’s declining market share of European sales, is hurting
investor conidence in platinum. Increasingly negative sentiment and
policies towards the technology seem to be accelerating this process.
Next year, diesel’s share in Europe is forecast to drop to 41%, compared
13Chapter 2: Price & Market Forecast Precious Metals Investment Focus 2017/2018
Palladium Supply & Demand to over 55% at the start of this decade. Turning to jewellery, the second
biggest demand component, this has also failed to beneit much from soft
Koz 2016 2017F 2018F
prices, as demand in China continues to struggle with a structural change
Supply in consumer preferences and a shift to lighter platinum pieces. Retail
Mine Production 6,766 6,675 6,685 investment, the other sizeable price sensitive area, is expected to continue
Recycling 2,373 2,401 2,524 easing, relecting disappointment over platinum’s persistently signiicant
Total Supply 9,139 9,076 9,210 discount to gold. Against this backdrop, the platinum market is expected
to see a growing surplus, which will push stocks to around 9Moz (280t) by
Demand
end-2018, equivalent to almost 15 months of fabrication demand.
Autocatalyst 7,980 8,229 8,339
Jewellery 283 287 284 Palladium
Industrial 2,039 2,080 2,006 Palladium has been the best performer among the precious metals during
Physical Investment 11 24 24 2017-to-date, rising by over 30% from the start of the year, as it rallied to
Total Demand 10,313 10,619 10,654 touch $1,000. In spite of a pull-back thereafter, it has been trading above
$900 at the time of writing. Palladium’s spectacular gains can be attributed
Net Market Balance -1,174 -1,543 -1,444 to improvements in its already favourable supply/demand fundamentals,
Palladium Price (US$/oz) 615 830 880 growing conidence in the general commodity sector following Trump’s
Source: Metals Focus election win and investors’ fading memories of painful losses in palladium
in 2014-15. More importantly, even though above-ground inventories
are still sizeable, they have been falling since 2012. In addition, strong
speculative demand for physical metal in China has seen a sizeable part of
the above-ground stockpile removed from the terminal markets and thus
the pool of liquidity available to the OTC market. Since late 2016, this has
been accompanied by persistent backwardation in palladium futures, a
typical response to tightening supplies.
Platinum:Palladium Ratio
Going forward, given our doubts about the US economy, there is a good
Ratio chance that investor sentiment towards risky assets will weaken, which
4.0 will inevitably afect palladium. With this in mind, we expect further proit
taking to emerge in late 2017 and early 2018, although the scale of such
3.5
liquidations should be limited. In addition, after notable gains this year, the
3.0
palladium price may well need a period of consolidation before moving
2.5 higher. From mid-2018 onwards, however, the price is anticipated to pick
2.0 up again before trading above $1,000 later in the year. This in turn will send
the annual average to a new record of $880 next year, up by 6% y/y.
1.5
1.0
This renewed rally is largely premised on assumptions that palladium
0.5 autocatalyst oftake will continue to post decent gains next year due to
Jan-10 Jan-12 Jan-14 Jan-16
growth in gasoline car sales in emerging markets as well as Europe where
palladium should beneit from rising gasoline penetration. To some extent,
Source: Bloomberg its price strength and tightening supplies have already become major
concerns for OEMs, yet any measure to reduce loadings would take time
to implement and so it is unlikely that this would materially afect demand
in the next couple of years. On the supply side, the total is expected to rise,
but not by enough to outweigh forecast gains in fabrication demand. The
palladium market is therefore expected to remain in a sizeable deicit next
year, a trend that started in 2012. Above-ground stocks of palladium as a
result are expected to fall to around 12Moz (380t) by end-2018, equivalent
to some 14 months of fabrication demand. This marks the irst time that
palladium’s demand cover drops below platinum.
14Chapter 3: Price Review Precious Metals Investment Focus 2017/2018
Chapter 3 Price Review
– Palladium, gold, silver and platinum saw Introduction
respective intra-year price rises to 27th The precious metals have, so far in 2017, all enjoyed year-to-date gains.
September of 37%, 11%, 5% and 2%. The most eye-catching has been palladium’s stellar surge of 37% to 27th
September (and it achieving a premium to platinum). Few would see that
– Palladium’s gains emerged as its tight as a major shock as strength at some point was always expected due to its
fundamentals fed through to its irst real physical tightness, including strong speculative interest. Gold’s rise of 11%
world liquidity scare this decade. to late September was still noteworthy, especially the rally above $1,350 as
North Korea kicked the market out of any summer slumber. That platinum
– The other three, especially gold, were managed any rise (2%) could be viewed as a modest success, given its
more driven by dollar weakness, sluggish unsupportive market fundamentals, but that highlights how platinum can
US rate rises and geopolitics. track the gold in the short to medium term. Silver, however, is perhaps this
year’s surprise underperformer as a year-to-date rise barely greater than
– Investors were the prime driver of price platinum’s has occurred at a time when a cross-metal rally should generate
gains, although interest from hedge funds more signiicant price gains due to its less liquid market.
and retail investors was generally limited
Silver’s sluggishness has left the gold:silver ratio at a high of around
75:1 - a level that does not sit well with bull market conditions. More
interest has been shown in the platinum-palladium spread as the gulf
in their fundamentals and bouts of investor buying of that story were
widely expected to push palladium to a premium. This was realised on
27th September, which marks a radical change from early 2017’s platinum
premium of over $200. As for the gold-platinum spread, most market
participants look to have adjusted to the new reality of a platinum discount
of well over $300.
Gold
Precious Metal Prices’ Relative With recent prints in the $1,350s, it is easy to forget how weak prices were
Performance, 2017* at the beginning of the 12 months under review; from a high in September
2016 of $1,353, prices fell to a 10-month low of $1,123 by mid-December.
Index*
The market, however, soon perked back to life this year, with levels back
150 over $1,250 by late February. After largely rangebound conditions to
140
mid-August, vigour then returned, with a decisive break out to a 13-month
high of $1,358 on 8th September. Prices may have since eased, but gold’s
130
year-to-date gain of 11%, as of late September, remains impressive. Key
120 to the big picture has been dollar weakness; gold in euro terms has been
lacklustre, being a fraction down on January 2017.
110
100 The initial price slide was partly down to growing expectations of a rate
hike in December, which also helped trigger a rally in the dollar. Much of the
90
Jan-17 Mar-17 May-17 Jul-17 Sep-17 early push came from Comex longs being closed out and this was joined
Gold Silver
later by selling in other arenas such as ETPs. This change was itself largely
driven by the US presidential election on 8th November, as Trump’s victory
Platinum Palladium
was seen as decisively pro-growth, leading to marked gains in US equities.
nd
* Index: 2 January 2017 = 100 This was underpinned by talk of higher inlation, faster rate rises and
Source: Bloomberg hawkish Fed commentary. That and the growing likelihood of monetary
16Chapter 3: Price Review Precious Metals Investment Focus 2017/2018
Probability of Fed’ Rates Being policy divergence with other key economies meant further dollar strength.
The price underside was also poorly defended by physical markets.
Unchanged by December 2017
Chinese demand for example was lacklustre, with irming SGE premiums
Probability (%) US$/oz more due to import licence restrictions. Indian demand also had to cope
with the demonetisation of high value notes announced on 8th November.
100 1,400
80 The turnaround in the market early this year was mainly due to a slide in
1,300
the US dollar and receding expectations of three US rate hikes in 2017. A
60 curbing of “Trump trade” exuberance was also apparent; equities did little
1,200 more than tread water in January. Politics elsewhere came to the fore
40
as fears grew of market-unsettling victories for populists in Europe, in
1,100 particular France. Physical demand in Asia was also supportive as Chinese
20
buying was boosted by seasonal factors and trade optimism. Indian bullion
0 1,000 imports also saw early gains on the back of low stocks and year-on-year
Jan-17 Apr-17 Jul-17 comparisons being against a strike-hit 2016.
Probability (%) Gold Prices
Prices then tried to push higher, but rallies into the $1,290s stalled in both
* Percentage probability inferred by bond prices April and June. Key to upward pressure was the return of dollar weakness
Source: Bloomberg
and the inter-linked falling perceived chance of a September rate hike and
the slide in US inlation from March. Falling inlation, however, also acted
as a negative for gold, as did the actual, if expected, rate rises in March
and June. Other factors were more actively bearish, including an equities
rally in mid-May and a slide in oil prices from mid-April to late June. In
addition, victories for mainstream parties in France and the Netherlands,
and the apparent resolution of problems in Italian banking removed some
uncertainty. Those negatives for gold, however, never led to a rout, partly
Gold Prices & the US Dollar,
as strong y/y gains in Indian bullion imports helped defend the underside.
2017 More important though was the absence of aggressive shorting, outside of
a brief window in July. This is thought to be largely down to concerns that,
US$/oz Index
even if equities were trending ever higher, valuations were only getting
1,400 90
more overblown in an era of endless turmoil in US politics and repeated
1,350 92 failures to pass legislation. Others feared the market complacency implicit
94 in the VIX’s record lows, and also important was the continuance of
1,300
negative real rates for the medium term despite the fall in inlation.
96
1,250
98
Geopolitics then gave gold a shot in the arm with North Korea’s irst missile
1,200
100 launch over Japan on 29th August. Gold received a further boost from
1,150 102 fears of a retaliatory overreaction by the US, and the emergence of the
debt ceiling issue in that country, an outcome made more complex by the
1,100 104
Jan-17 Apr-17 Jul-17 cost of Hurricane Harvey’s damage. The rally was given extra fuel by Fed
commentary that cast doubt on a rate rise in December and led to a fall
Gold Price
in bond yields and the dollar. As a result, gold shot up to the earlier noted
US Dollar Index (Inverted)
13-month high of $1,358 on 8th September. Prices have since eased,
Source: Bloomberg which is understandable given easing geopolitical tensions and dollar
strength. Gains could have been stronger and more resilient, however, if
there had been greater participation during the year from professional
investors, particularly still equity-focused hedge funds.
As normal, the fundamentals were more of a footnote for prices, if on
balance mildly positive. The press and investors certainly noted that mine
18Gold Price High, Low, Close (London, US$/oz) and Key Events in 2016/2017
1,400
Gold hits ytd high DXY at ytd
Demonetisation of $1,358 low of 91.0
initiative begins
in India
S&P 500
Index
passes
China producer News of US inlation (CPE, March)
2,500
North Korea’s irst missle
1,350 Donald Trump price index at falling to 1.6% launch over Japan
elected ive-year high Uncertainty
President in EU politics
of the US spurs safe-haven WTI at ytd low of $42
buying S & P up 6% ytd
to record high
over 2,400
Taiwan jets
scrambled
after Chinese Euro at 6-month
high over $1.10 Comex net long
1,300 navy enters
positions fall to
Taiwan’s waters
an 18-month low
DXY at ytd high of 7.4Moz
of 103.8 Russian central bank
added almost 800koz to
gold reserves in March
1,250
ETPs see largest
daily outlow since
July 2013 of 569koz
Fed raises rates by VIX at record low
0.25% to upper bound
target of 1.25%
1,200 ETPs at 2016
high of 64.5Moz Indian Goods & Services
Tax (GST) introduced
US Senate rejects
Emmanuel Macron ACA repeal proposal
Shanghai Gold
elected President
Precious Metals Investment Focus 2017/2018
Exchange Premium Fed raises rates by of France
Index at 2016 0.25% to upper bound Angela Merkel wins a fourth term
high of 74.2 target of 1.00% as Chancellor of Germany
Donald Trump’s
Fed raises rates by inauguration as
1,150 0.25% to upper bound President
target of 0.75%
FOMC Meeting
FOMC Minutes
Italy & EU Commission
50 - Day Moving Average
Populist PVV agree Monte Paschi
Gold's posts its 2017 low of $1,146 bank rescue
US 10-year treasury beaten in Dutch 100 - Day Moving Average
on the second trading day
bond yields at 2016 elections
of the year
high of 2.64% 200 - Day Moving Average
1,100
Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17
NB: Black line indicates daily trading range; Source: Metals Focus, Bloomberg
19
Chapter 3: Price ReviewChapter 3: Price Review Precious Metals Investment Focus 2017/2018
Gold Investment production is set to fall for the irst time this decade. Mining also made
headlines through output-curbing resource nationalism in places such as
Moz Moz Indonesia. It also cannot have hurt sentiment that environmental matters
will trim China’s output and hedging has stayed minimal. In addition, some
40 80
comfort has been taken from global jewellery oftake running broadly lat
75 y/y despite higher prices. However, central bank buying has eased and the
30
70 market is aware of its growing reliance on just one country, Russia.
20 65
60 Silver
10 Similar to gold, silver had a tough time in late 2016 as it fell from over $20
55
in September to an 8-month low of $15.63 in December. It managed a fair
0 50 recovery to back over $18 as the new year began but since then it has
Jan-16 Jul-16 Jan-17 Jul-17 underperformed its yellow cousin. After a rally to $18.65 in mid-April, silver
Comex Net Long Positions* (LHS) trended down, rather than sideways, hitting a 15-month low of $15.19 in
ETP Holdings (RHS) July. A rally then emerged but ran out of steam at the $18 mark in early
September, leaving April with the current year-to-date high. This meant
*Combined non-commercial and non-reportable
that, having oscillated in a rough range of 68-72 from September 2016 to
positions.
Source: CFTC, Bloomberg April, the gold:silver ratio has risen to a new normal of around 75.
Silver’s slide in late 2016 to below $16 was largely down to forces similar to
those hitting gold, such as a rising dollar. Of interest was that, even if the
market was bearish, the gold:silver ratio did not soar, as might be expected
given silver’s typically higher gearing. This was thought due to silver
beneiting from the pro-growth hopes from the new Trump administration;
not only could that directly boost silver demand (mainly in infrastructure
Silver Prices and the Gold:Silver
projects), but prices also saw a boost from base metal strength, especially
Ratio, 2017 for copper. There was certainly scant support from the physical markets;
Indian bullion imports in Q4.16 were down over 60% y/y for example.
US$/oz Ratio
19 78 The drivers of the February rally over $18 were again similar to gold but,
76 with prices so strong, it was of note that the gold:silver ratio only narrowed
18 to an unexceptional 68. This was due in part to reappraisals of Trump’s
74
ability to boost US GDP growth (and so lift silver oftake). Some US retail
17 72 investor interest also waned as “their” man was now in the White House,
and Indian bullion imports were weak, down 16% y/y in January-February.
70
16 Another characteristic favouring gold over silver concerns the impact of
68 the wealth management sector. When these investors have been active in
the precious metals space they have favoured gold over silver.
15 66
Jan-17 Apr-17 Jul-17
Silver’s behaviour mid-year deserves analysis as prices weakened steadily,
Silver Price Gold:Silver Ratio despite largely rangebound conditions in gold. This was in part down to
silver’s industrial linkages, which left it vulnerable to the general slide in
Source: Bloomberg
commodity prices from mid-April to late June. The funds certainly were on
the attack, with silver aggressively shorted from mid-April. In other arenas
however, price dips below $16.50 and even more so $16.00 encouraged
bargain hunting. ETP holdings for instance rose fairly steadily to a historic
high in mid-July and US Eagle sales that month were up 69% y/y. It was
other agents, however, that sparked of the late August rally over the $18
mark. The key driver was again gold’s own rally, on the back of such drivers
20Silver Price High, Low, Close (London, US$/oz) and Key Events in 2016/2017
21
US Mint US Mint US Mint US Mint
Eagle Sales Eagle Sales Eagle Sales Eagle Sales
Q3.16 4.3Moz Q4.16 7.1Moz Q1.17 8.0Moz Q2.17 4.3Moz
(-70% y/y) (-35% y/y) (-46% y/y) (-63% y/y)
20
Fed raises rates by
Donald Trump 0.25% to upper bound
elected target of 1.25%
President Au:Ag ratio at
of the US ytd low of 67.4
Copper prices at
3-year high
Silver hits ytd high of
$18.66; highest since
North Korea’s irst missle
19 launch over Japan
mid-November 2016
Fed raises rates by
0.25% to upper bound Au:Ag ratio at
target of 0.75% ytd high of 79.4 ETP holdings at Comex gross short
record high positions at record
reporting low
Indian bullion imports
in May at near 2-year S&P 500
high of 771t Index
passes
2,500
18 Operations suspended
at the Escobal silver
mine in Guatemala US Mint
Eagle Sales
+69% y/y
in July
17
US dollar
strengthens,
GBP falls to
31-year low
Precious Metals Investment Focus 2017/2018
Donald Trump’s Angela Merkel wins
inauguration as a fourth term as
President Chancellor of Germany
Demonetisation
initiative begins Indian Goods & Services
16 in India Tax (GST) introduced Dow Jones Index closes above
Fed raises rates by
0.25% to upper bound 22,000 for the irst time
target of 1.00% Copper prices
at a 5-month low FOMC Meeting
FOMC Minutes
50 - Day Moving Average
100 - Day Moving Average
200 - Day Moving Average
15
Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17
NB: Black line indicates daily trading range; Source: Metals Focus, Bloomberg
21
Chapter 3: Price ReviewChapter 3: Price Review Precious Metals Investment Focus 2017/2018
Silver Investment as the jump in geopolitical tensions over North Korea, a slide in the dollar
and expectations for slower US rate rises. Much of this push came from
Moz Moz heavy short covering on Comex, whereas gross longs barely moved.
700 700
As with gold, silver fundamentals’ price impact was slight, although in
600
675 this case mildly bearish. As intimated above, the main negative has been
500 retail investment. Its weakness in the US has also had a multiplier efect as
400 650 reports on the slump in Eagle sales have rarely been followed by talk of the
compensating shift to 1oz rounds. Investors have been aware of the surge
300 625
in Comex stocks, which has been attributed to this weak retail investment
200
in the US and also India. As suggested by still decent premiums on four
600
100 9s silver, industrial oftake has been good and there were supportive
0 575 developments elsewhere. Mine output for instance is set to fall this year
Jan-16 Jul-16 Jan-17 Jul-17 and resource nationalism (for example in Guatemala) has been in the news.
Comex Net Long Positions* (LHS)
ETP Holdings (RHS)
*Combined non-commercial and non-reportable
Platinum
positions. The year so far may have seen moments of strength, in the form of rallies
Source: CFTC, Bloomberg over $1,000 in February and early September. However, this was usually
just on the back of gains elsewhere in the precious metals complex. The
metal’s already poor fundamental outlook also tended to deteriorate as
the year progressed. This helps explain the ease with which prices were
knocked back in May and July towards December 2016’s 11-month low of
$890. That also lies behind the marked widening in its discount to gold and
the evaporation of its premium over palladium. As we go to press, platinum
has again been pushed back (to around $920), virtually wiping out any year-
Platinum Prices & Their Gold
Diferential
to-date gain and making it the year’s worst performing precious metal.
Prices today may seem soft, but losses were greater in the second half of
US$/oz US$/oz
2016 as they fell from over $1,190 in August to below $900 in December.
1,050 -150
There were many real world reasons for this, including the absence of
-200 voluntary supply cuts in South Africa, successful wage negotiations
1,000
with that country’s trade unions, concerns about diesel following
-250 announcements of future diesel bans in certain European cities, and soft
950 jewellery demand in China. All that helped trigger the heavy shorting on
-300
Nymex seen in late 2016. Weakness in gold and silver prices were scarcely
900 a help either, although it is worth noting that the discount to gold narrowed
-350
from over $330 in October to the low $200s by December.
850 -400
Jan 17 Apr 17 Jul 17 This interplay between platinum’s sizable and growing market surpluses
Platinum Price (LHS) and gold’s macro-dominated price moves have then come to characterise
Gold - Platinum Differential (RHS)
price behaviour so far this year. Platinum certainly began 2017 in quite a
positive manner as it rallied to what proved to be the high for the year so
Source: Bloomberg far of $1,045 in late February. This phase was very much down to strength
in gold, itself due to such factors as a weak dollar, and it was of note
that platinum’s discount to gold held fairly steady at the time. There was
certainly a perception too that platinum had moved into oversold territory,
triggering decent short covering on Nymex. These opening months were
also the only time in the 12 months under review when platinum’s premium
to palladium did not weaken notably. This we ascribe in part to faltering
22Platinum & Palladium Price High, Low, Close (London, US$/oz) and Key Events in 2016/2017
1,200
Platinum
European Car Sales European Car Sales European Car Sales European Car Sales
Q3.16 +1.8% y/y Q4.16 +3.3% y/y Q1.17 +7.2% y/y Q2.17 +1.4% y/y
Platinum’s discount
to gold widens
Sibanye completes Northam Platinum USD:ZAR
1,100 over $350
acquisition of the buys Glencore’s strengthens
Rustenberg mine Eland mine for to 12.3 Platinum fall to ytd low of Nymex net long positions
US$175M $891; lowest since fall to an eight-year low
December 2016 of 513koz
Platinum ETP holdings hit 2.54Moz,
their highest level since
November 2015
1,000
South African
Platinum holdings
900 President
in ETPs fall to a 3-year UK Government
low of 2.25Moz
ires Finance LMC: June diesel share S&P 500 Index
Minister in Europe at 45% versus announces ban on
at record high
50% in June 2016 internal combustion
Toyota announces of 2,500
engine sales from 2040
new model of
Platinum ETP holdings catalyst, designed
fall to a three-month Volvo announces no
to use 20% less
low of 2.36Moz new pure internal
800 precious metal Palladium prices at
AMCU sign combustion engine models
3-year wage deal launched from 2019 onwards a premium to platinum
Yen platinum price
1,000 for the irst time
Palladium London mayor announces falls below 3,300/g in 16 years
Mayors of Paris,
Athens, Madrid and charge for older vehicles
French Government announces
Mexico City pledge entering the city centre,
ban on internal combustion engine
to ban diesel vehicles from efective October this year
sales from 2040
city centres by 2025
900
Pt:Pd ratio at ytd
high of 1.36
Donald Trump
elected president
800
of United States
Palladium gets within
Precious Metals Investment Focus 2017/2018
5¢ of $1,000; highest
since level February
2000
700
Palladium’s discount to platinum Palladium ETP holdings Net long positions on
below US$50/oz, lowest level in 15 years fall to a seven and a Nymex hit a three-
half year low year high of 2.57Moz
of 1.42Moz
600 China lifts auto purchase tax to
7.5% instead of 10% for 2017 50 - Day Moving Average
100 - Day Moving Average
US Car Sales China Car Sales US Car Sales China Car Sales US Car Sales China Car Sales US Car Sales China Car Sales
Q3.16 -1.3% y/y Q3.16 +27.7% y/y Q4.16 +0.6% y/y Q4.16 +15.7% y/y Q1.17 -1.0% y/y Q1.17 +5.1% y/y Q2.17 -2.8% y/y Q2.17 -0.9% y/y 200 - Day Moving Average
500
Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17
NB: Black line indicates daily trading range; Source: Metals Focus, Bloomberg
23
Chapter 3: Price ReviewChapter 3: Price Review Precious Metals Investment Focus 2017/2018
Platinum Investment conidence in Trump’s ability to deliver higher GDP growth, which buoyed
gold and with it platinum, but hit industrial metals, including palladium.
Moz Moz
Platinum’s subsequent slide back below $900 by early May was of note
3.5 2.6
as it was in this two-month window that the discount to gold blew out to
3.0
what now seems to be the new normal of $300-$350. With gold trending
2.5
2.5 sideways to higher at the time, platinum-speciic drivers were needed
2.0 and here we would single out downgrades to diesel’s forecast share of
2.4
1.5 the European car market. Japanese investors, for a long time some of
platinum’s most ardent supporters, also appear to have become sorely
1.0
2.3 disillusioned with platinum’s persistent and growing discount to gold. The
0.5
sustenance given to South Africa’s platinum sector from the price strength
0.0 2.2 of its palladium and rhodium by-products was also seen as postponing the
Jan-16 Jul-16 Jan-17 Jul-17
cuts in output needed to balance the platinum market.
NYMEX Net Long Positions* (LHS)
ETP Holdings (RHS) Prices then saw a brief rally in May, due partly to rand resilience despite the
iring of South Africa’s inance minister, which raised talk of output cuts.
*Combined non-commercial and non-reportable
positions. However, this quickly unwound in June, partly through news from Volvo
Source: Bloomberg and the French government on moves away from pure internal combustion
engines to hybrids and electric vehicles. A greater rally then began in July
that took prices briely back over $1,000 in early September. This was
almost entirely down to gold-tracking as that metal powered ahead on the
back of such events as rising tensions over North Korean actions and the
reappearance of the US debt ceiling problem. There was certainly nothing
of substance in platinum’s fundamentals at the time, with it becoming
clearer then that Chinese jewellery demand was far softer than had been
Palladium Prices & Their
Platinum Diferential
expected and that autocatalyst scrap was on the rebound. With this
background story in play, it came as little surprise that platinum followed
gold lower during the last few weeks as it reacted to drivers such as the
US$/oz US$/oz
easing of geopolitical tensions and hawkish talk at the September FOMC.
1,000 300
950 250
900 200 Palladium
850 150 Unlike the other precious metals, palladium only saw temporary weakness
in late 2016, as it fell from over $700 in late September to a 3-month low
800 100
of $611.52 by the end of October. From that point, however, palladium
750 50
barely looked back, rallying this year to an intra-day high of $999.95 on 4th
700 0 September - levels last seen in February 2001. (For the record, the market
650 -50 actually saw ofers at just over the $1,000 mark at that peak.) Also dramatic
Jan 17 Apr 17 Jul 17 was the disappearance of the platinum:palladium premium; it fell fastest
Palladium Price (LHS) (from over $370 to under $150) in November 2016 but more eye-catching
Platinum - Palladium Differential (RHS) has been its move to a slight premium on 27th September.
Source: Bloomberg The fact that prices marched upwards with only brief retreats en route is
largely down to the metal’s yawning and growing market deicits (this stood
at 1.2Moz in 2016 and is forecast to reach 1.5Moz this year). Both investors
and end users are aware of this general situation and also the fact that the
deicit is likely to persist at high levels for the next few years as both supply
and demand remain relatively price inelastic. However, this situation has
been in existence for some time and so, if this broad outlook was already
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