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Taking a Breather

September 2016

Prices of precious metals appear to have moved into a comfortable range after the runaway rally so far this year

As stock markets steal the limelight globally with the ongoing risk-on rally, precious metals seem to be taking time out following the stupendous run witnessed for most part of the current year. The rally has largely been unidirectional, led by silver. While the medium and long term fundamentals remain supportive of higher prices as outlined in our previous month’s commentary, there is little on offer in terms of fresh news which indicates an impediment to the current risk-on rally, until the upcoming US Presidential elections. As seen from the chart, the two metals gold and silver have been moving sideways since the beginning of July. Any weakness in the coming weeks should be seen as an opportunity for investors to stack up on the metals as part of their strategy to develop an insulation for uncertain times.

Precious_Chart_Sep_2016

Gold
Gold has formed a strong trading range between USD 1320 – USD 1330 an ounce on the lower side and USD 1350 an ounce on the higher side. Recent weeks have seen it push the higher end of the range, even touching levels over USD 1365 an ounce. However, as mentioned, the near term lacks any supportive news and prices could trend towards the lower range. Beyond the same, the USD 1300 an ounce remains a level decisive to signal any trend change. On the upper side, the level of USD 1391 an ounce would remain the resistance for the yellow metal.

Seasonal weakness from major consuming nations like India and China over the next few months coupled with ongoing strength in the stock market are expected to weigh on gold prices. This trend of investment demand though would change in the last quarter in the Indian market which would see festival buying besides farmers, who are expected to replenish their gold stock following a healthy monsoon this year.

Silver
The price of silver mirrored that of gold – the near term industrial demand for silver is passing through a seasonal effect dampening the demand side pressure on the metal. The metal is currently seeing a phase of profit booking, having returned over 40% for the year-to-date. As seen from the chart, the run up has been sharp between the USD 18 an ounce and USD 20 an ounce level and it would be an ideal time for the metal to settle in and use this phase as a period of consolidation – it is recommended to continue playing this period as a trader in the metal and allow it time to settle in. There still remains a significant catch up to be played for the metal given the last few years of underperformance.

Platinum
A recent highlight for the metal has been the US Mint reintroducing the American Eagle platinum coins (take orders from accredited distributors on 25 July). Estimates peg the Mint having sold nearly 18,400 pieces over the 1st two days – while this number trails the fourth-highest annual total of 21,800 coins, the pace of the offtake is a major positive.

Another development is that of The World Platinum Investment Council (WPIC) partnering with BullionVault to offer physical investment platinum on BullionVault’s online marketplace alongside its existing gold and silver offerings. The move is expected to give private individuals unprecedented access to the platinum bullion market at the low levels of cost currently enjoyed by institutional investors. This initiative is seen as another step on the part of WPIC in ensuring long term investors in their decisions to reposition themselves in platinum.

The metal surpassed the levels of USD 1100 over the last month touching a high of USD 1199 per troy ounce on August 10. Supporting this trend have been reports of production of platinum falling by nearly 12% in June compared to the prior month. However, it also needs to be noted that May output was the second highest on record and production continues to rise on a year-on-year basis.

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