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October 2016

The US Presidential election remains the key focus area that is expected to influence sentiment in precious metals over the coming weeks

Precious metals have seen a heightened level of volatility over the past few weeks with an overall downwards trend – this as market participants speculated on the Fed stance. Profit booking has come to the fore in the metals and consensus aligns on a general belief of the pack having seen the best part of the year behind.
The coming month could possibly see volatility continue to be the order of the day as the world markets brace themselves for the final showdown before what is expected to be a keenly watched US Presidential election. Prices continue to be largely range bound and the pack offers ideal opportunities for traders.

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Gold
Gold prices continued to trade within the range (USD 1320 – USD 1350) as suggested in the previous months commentary, for most part of the last few weeks. It did see some weakness, toying with and respecting the USD 1300 an ounce level. However, as expectations of a Fed rate hike waned, eventually there being no hike decision, the metal rallied back within the range mentioned earlier. As is the case with other assets, the US Presidential elections remain the focus area expected to influence sentiment over the coming week. Specifically for gold, demand in keys markets, China and India are expected to continue draw focus in the same period.

Overall bullishness around the metal remains intact, particularly with 2017 in mind. Canadian investment bank RBC Capital Markets recently joined the gold bull chorus sharply revising their earlier forecasts upwards; the bank sees gold rising to USD 1,500 in 2017 compared to its previous forecast of USD 1,300. They join Credit Suisse and BofA Merrill Lynch which expect similar levels on the metal. RBC referenced the more bullish outlook on account of ‘elevated geopolitical risk in the UK/Euro zone, increasing systemic risk with increasing negative yields for government bonds and the Fed likely to pursue a more dovish monetary policy’.

Silver
Volatile in silver prices continued over the past few weeks. The metal continues to trade within the broader range indicated previously of USD 18 an ounce and USD 20 an ounce level. To give a perspective, silver has for the second time this year been through a correction extending by more than 10%. Compare that to gold and one gets a perspective on the Gold-Silver relation; ‘when gold walks, silver runs.’

Platinum
Platinum prices have weakened over the last month from the highs recorded in August – accountable largely to profit booking. The fundamental factors remain supportive of prices – given the market remains largely in deficit and the ongoing mining (wage) crisis in the metals main market, South Africa. The World Platinum Investment Council recently released its Platinum Quarterly Q2 2016 update. Global platinum demand is forecast to be 8,250 koz in 2016, essentially flat YoY. Automotive demand is projected to be 3,390 koz, slightly lower than in 2015 as a declining diesel share more than offsets growing vehicle sales. Jewellery demand is little changed at 2,885 koz, with an anticipated decline in Chinese jewellery consumption being offset by growth in other regions. Industrial demand is expected to dip by 2% year-on-year to 1,625 koz owing to lower requirements in the electrical, petroleum and glass sectors, while investment demand is projected to expand by 45 koz to 350 koz, as although bar and coin demand is expected to fall back from the exceptional level seen in 2015, the reduction in ETF holdings is also expected to be lower than last year. Total supply is forecast to decrease by 2% to 7,730 koz this year as lower refined production from South Africa and Russia outweighs gains in other regions and from recycling.

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