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Market Focus: Precious metals

Gold

After several years of decline and multi­ple false dawns, 2016 has seen a marked change in the fortunes of the four major precious metals. With gold having led the charge, recording strong gains from the start of January, the other metals have since followed suit, with the whole complex recording strong, double-digit gains in the year to date.

The usual summer slump in precious metal prices has been slightly more pro­nounced than usual, but many see this, in part, as a correction after the dramatic price surges seen in June around the time of the Brexit vote. Despite these slight price falls in the past month, the overall outlook across precious met­als currently looks robust.

Gold

Gold opened the year at $1,072 per oz, slightly up from a five-year low of $1,050/oz recorded at the start of December. The price rose sharply in the first quarter and this continued, more steadily, in Q2, recording a high of $1,370/oz on 6 July, giving a rise of nearly 28% in the first half.

Since this date, gold has corrected slightly and currently stands at $1,328/ oz, which is still nearly 24% above its January opening price.

With gold having led the charge in recording strong gains from the start of January, the other metals have followed suit, with the whole complex recording strong, double-digit gains in the year to date

The fact that the price of gold has not corrected more sharply during the sum­mer months after such an aggressive bull run does seem to suggest significant underlying support for the metal at cur­rent prices. The correction could really be seen as a normalisation after the price surge around the Brexit vote – in sterling, the price of gold rose almost 19% in June alone.

Precious metal prices regularly stag­nate in the quieter summer trading months before moving in a decisive direction in Q4. While the very strong price increases in the first half of 2016 – and apparent hiatus in Q3 – may make some investors nervous, the price remains relatively low in a 10-year con­text, standing some 30% below its high of $1,896/oz in 2011.

The ongoing macro-economic con­cerns around the globe, coupled with a low cost of holding the metal, thanks to suppressed central bank rates, makes gold an attractive prospect for further growth in the short to medium term.

Silver

Silver started the year at $14/oz and traded sideways, declining to a low of $13.58/oz on 29 January, while gold rose. But from 21 January, as gold’s gains accelerated, silver was finally swept up in the enthusiasm and began to rise too.

It went up relatively steadily in Q1 and then, as we have so often seen with this highly volatile metal, accelerated sharply in Q2 to outstrip gold in growth terms, rising some 52.5% to a high of $20.71/oz.

Since this time, the price has, predict­ably, corrected slightly more sharply than gold and currently stands at $18.72/oz. As with gold, this correction is relatively muted, with the metal being the strongest performer of all the pre­cious metals this year so far: some 33.7% above its January opening price.

With much of the demand driven by investment, it seems likely that silver’s direction of travel will continue to be governed by gold in the short term. But from an investment perspective, the smaller relative size of this market means it will remain susceptible to higher volatility than gold.

Platinum

After a dismal year in 2015, platinum opened 2016 at $878/oz. Unlike gold, it continued to decline by more than 7% to a low of $817/oz by 21 January.

Since this point, although the corre­lation with the price of gold has not been particularly direct – implying that industrial factors are at play in defining the platinum price alongside investor sentiment – the price of platinum has steadily risen throughout 2016. It recorded a high of $1,177/oz on 10 August and is currently trading at $1,043/oz, some 18.8% above its Janu­ary opening price.

Unless there is a resurgence of the supply-side disruptions witnessed in the platinum market in recent years, the metal seems likely to mirror loosely the performance of gold, although sup­pressed industrial demand makes it unlikely that platinum will outperform the rest of the precious metals complex.

Palladium

Palladium fared the worst of all the precious metals at the start of 2016, falling sharply from $547/oz at the start of the year to record a low of $465/oz on 12 January. From this point, palladium’s performance correlated quite closely, albeit less dramatically, with that of silver.

Palladium rose steadily for the remainder of Q1 before accelerating in Q2 to record a high of $731/oz on 10 August. The price has since corrected to $665/oz, but remains some 21.6% above its opening position for 2016 and 43% above its January low.

www.bettsmetals.co.uk

Charlie Betts is the managing director of Stephen Betts Group

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