Forex Investment and Currency Trading

Gold

The gold price finally broke above the magic USD 1,000/oz level in mid-March, as a combination of extreme weakness in the USD and fear about problems in the US banking sector resulted in a rush into safe haven assets. However, the price fell sharply after this, hitting a low of USD 904/oz at one point as some of this money was withdrawn. This recent reduction was largely driven by investors being forced to liquidate gold holdings to offset loses elsewhere, rather than indicating a fundamental reassessment of gold’s prospects. Physical gold demand should be boosted by this recent price fall, although latest figures show weak imports by both India and Turkey. Indian imports fell to 11t in February - down 81% y/y and Turkish imports fell 30% m/m in January to 13t. India is the world’s largest producer of gold jewellery.

Outlook: While gold prices have swung wildly in recent weeks, the more upside should exists.Gold is expected to consolidate in the short-term but then head higher once more later on in the year.

Silver

Silver prices also tumbled in mid March, dragged down by weaker gold prices and the general stampede out of commodities. The market drop also reflected silver’s weaker fundamentals. Industrial uses are important and account for around 68% of silver offtake. High prices are reportedly affecting demand and accelerating the move away from traditional photography. Despite this fundamental weakness, ETF silver holdings continue to rise. Holdings in iShares - the largest silver ETF - reached 5,579t in late March - up 4% on the month and 38% y/y.

Outlook: While silver prices will inevitably be lifted by rallies in the gold price, the bullish sentiment is expected to be capped by continued weakness in physical consumption. Prices should slowly trend higher in the months ahead.

Platinum

The first half of March saw extreme volatility in the platinum market. The spot price hit a high of USD 2,290/oz early in the month but then fell sharply in the days that followed to a low of USD 1,805/oz. The primary driver continues to be South Africa. The state power-provider Eskom announced on the 6th March that more power would be made available for the mining sector. Power allocation will increase from 90% of normal levels to 95%. While this will allow higher production in the country, the crisis is far from over and the country continues to suffer from rolling blackouts and a lack of sufficient generating capacity. Moreover, load-shedding could increase once more heading into the winter season (May to July) when heating demand is at its peak.

Outlook: Platinum prices are expected to stay high and volatile heading into the second quarter. Unless the winter is exceptionally warm, it seems that the South African electricity grid will be severely tested in the months ahead. In these circumstances further disruptions to platinum mine production can be expected at some point - resulting in renewed spikes in the price. Heading into the second half of this year the prices are expected to trend lower once more as the power crisis eases somewhat.

Palladium

Over optimistic buying helped lift palladium prices in February. The main rationale was that high platinum prices would encourage switching between the two sister metals and the South African problems were also critical given that it accounts for 39% of global supply. However, the palladium market is still substantially oversupplied, and has been for many years, so the rally did not really stand up to scrutiny. Therefore, it was not that surprising that prices came crashing down when the power crisis in South Africa started to ease. After jumping by USD 204/oz in February, spot prices fell by USD 133/oz in the first couple of weeks of March. There was also a reduction in ETF holdings.

Outlook: Palladium prices are expected to remain high in the short term and then trend lower as platinum softens. Investor interest in palladium should continue and strong growth is also likely in the jewellery sector. This will help to mitigate palladium’s relatively weak fundamentals.