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Markets - Precious metals in 2013

It has been an unusual year in the precious metals markets. Physical demand has remained fairly robust and yet, after several years of upward momentum, the overall trend in 2013 has been downward.

Investor sentiment turned against gold early in the year, with massive exchange-traded fund (ETF) outflows in gold forcing the entire complex downwards. Platinum group metals suffering the least, as physical demand began to return from the automotive sector and supply remained tight. A combination of ongoing global economic woes and improving physical demand has left many in the sector more bullish towards the end of the year.

Gold

Gold’s highest price in 2013 came on the first day of trading, when it fixed at $1693 per ounce. It then steadily declined for the first half of the year, dropping nearly 30 per cent to fix at $1192 on 28 June, and leaving its previous multi-year highs far behind. Since June, the yellow metal has recovered slightly and is now trading comfortably above $1300 per ounce. Purely looking at the fundamentals, with global demand still outstripping supply, and the global economy still in a state of flux, the decline in the value of gold in 2013 has been somewhat perplexing. Unlike many other metals, however, a large proportion of the world’s gold is held as an investment product, meaning that market sentiment affects the price more dramatically than industrial or jewellery demand. Exchange-traded funds have seen huge outflows of gold during 2013 as investors have fallen out of love with the metal (SPDR holdings reducing by almost one third to under $40 billion per year to date), which has inevitably put downwards pressure on the price. Predicting the gold price going forward is a fool’s game, but the negative swap rates which we have seen recently (for the first time since 2001, and for the longest period in 24 years) certainly suggest high physical demand in relation to supply availability and augur well for gold.

Silver

The price of silver tends to loosely track gold, but with greater volatility. This has largely been the case in 2013. Silver began the year at $30.87 per ounce and remained fairly stable for the first quarter before dropping by nearly 40 per cent to record a multi-year low of $18.86 per ounce on 28 June. Since then, like gold, the price has recovered somewhat and silver is currently trading around $22.50 per ounce. Although certainly strongly influenced by gold, a greater percentage of the global silver demand is accounted for by industrial consumers (such as the electronic and photographic industries). Silver demand in most of these industries has been depressed in the last couple of years, but is now recovering.

Platinum, Palladium & Rhodium

Platinum group metals are again influenced by movements in gold, but are also affected considerably by industrial demand. These metals have excellent catalytic and electrical properties and are consequently heavily utilised in the automotive sector. Platinum and palladium started the year at $1556 per ounce and $708 per ounce respectively and increased slightly in the first quarter, before both being dragged down over 15 per cent with the rest of the precious metals complex. With continuing global recovery in the automotive sector, both metals have recovered since, with palladium now trading higher than at the start of the year.

Charlie Betts, Managing Director, The Stephen Betts Group ( www.bettsmetals.co.uk )

The US view – Kitco News: www.kitco.com

Gold futures have been largely sideways lately, with speculators hesitant to be too aggressive as they wait for more clues on just what the US Federal Open Market Committee might do with its quantitative-easing programme [known as ‘the taper’]).

“Traders are looking for clues on whether a December taper will happen,” said Sean Lusk, director of commercial hedging with Walsh Trading. “I don’t think it will, personally, but there is some sentiment (for this) in the market, given the strength in the October employment number and the surprise revisions to prior (months).”

There seems to be a divide among Fed members themselves on how quickly to taper, based on their speeches, Lusk said.

“The market is really hyper sensitive to any statements that come out about early tapering,” Lusk said.

There is some apathy toward gold generally as many investors plough into a rising stock market – although this could change quickly if equities were to suddenly go into a tailspin.

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