Log in Open account
Australia
Is it all over for precious metals?

Is it all over for precious metals?

Commodities 10 minutes to read
Ole Hansen

Head of Commodity Strategy

Summary:  Bullish sentiment in both gold and silver has staggered this week against a backdrop of multiple risk-positive factors. Is this the end of the road for the recent run in precious metals?

Gold, silver and platinum strength have seen a major challenge this past week. Here, we take a look at the reasons behind the reduced appetite for precious metals and ponder whether the recent rally has run out of steam. 

Several events during the past few weeks helped change the sentiment away from safe-haven assets:

• Increased speculation about a successful outcome of the US-China trade talks.
• Stronger than expected US Q4’18 GDP pushing back, at least temporarily, concerns about the economy sliding into recession.
• Rebound in Federal Reserve hike odds following recent testimonies on Capitol Hill from Fed chair Powell.
• Reduced risk of a hard Brexit as PM May gives in to pressure from members of her party.
• Profit-taking from gold investors worrying that the $1,360-80/oz band would once again offer an impenetrable barrier of resistance.

The table below shows the performance across some of the key markets which help determine the appetite for gold at any given time. While the rally in stocks has provided some headwinds since January, it was renewed strengthening of the dollar and bond yields which help accelerate the sell-off since last Friday’s stronger than expected US data.
Precious metals
Delayed Commitments of Traders reports from the US CFTC found that hedge funds jumped into gold futures in the run-up to the failed attempt at $1,350/oz. The 69% increase in the net-long during the week to February 19 left many recent established longs under water once the price reversed lower. Investors in exchange-traded funds backed by bullion, meanwhile, have been continued sellers since early February.

The reductions culminated last Friday when 11 tons were withdrawn, the biggest one-day reduction in total holdings since March 21 of last year. 
Total holdings
Source: Saxo Bank
The selling pressure increased last week after the uptrend from November was broken. We view the current sell-off as a correction within the current uptrend. While we maintain a bullish outlook above $1,276/oz, we also have to conclude that a deterioration in global stocks, as well as increased geopolitical and/or macroeconomic risks are needed to give gold enough momentum to mount a challenge at the strong band of resistance between $1,360 and $1,380/oz. 

We believe that the stock market, while not yet showing any real warning signs, may be at risk of a correction once the trade deal is announced – not least given how far the belief in a deal has carried the market already. The biggest short-term risk to our constructive outlook remains the dollar, which may put in a final push to the upside before running out of steam, despite having remained rangebound for months. 
XAUUSD
Source: Saxo Bank
Silver has already corrected 50% of its November-February rally as it remains out of favour with investors looking for better opportunities in other metals such as platinum and copper.

Platinum, supported by surging palladium prices, has seen relative value traders return to bring down the discount to gold; the same, however, can not be said about silver. The lack of demand is best reflected in the gold-silver ratio, which has moved back above 85 (silver ounces to one gold ounce), not far from the quarter-century closing high at 86.2 reached last November. 
Silver
Source: Saxo Bank
Platinum, which up until recently enjoyed a tailwind from rising gold and surging palladium prices, also ran into profit-taking after failing to break the November high at $877/oz. Having retraced half of the February run-up in just three days the metal is once again looking for support around $830/oz (as per the chart below).

A near-$700 record discount to palladium is likely to provide the support needed for the metal to further claw back some of its discount to gold, currently at $445/oz and down from a record $525/oz just three weeks ago. 

Platinum’s initial surge and subsequent sell-off shows the price impact on metals, where a lack of liquidity can quickly turn from being an investor's best friend to their worst enemy.
Platinum
Source: Saxo Bank
HG Copper has been in corrective mode the past week after finding resistance ahead of $3/lb. The rally until then was driven by trade talk hopes and a rundown in stocks held at warehouses monitored by the London Metal Exchange, the worlds largest industrial metals exchange, and COMEX in New York.

While overall LME stockpiles have dropped to 118,000 tons, the lowest since 2008, the drop in freely available stocks has fallen close to levels last seen in the 1970s. These developments have led to speculation about a tightening market, as can be seen through the widening backwardation between LME copper cash and the three-month contract.

It is worth noting, however, that deliverable stocks at the Shanghai Futures Exchange in China have continued to rise since early January in tandem with these developments. 
Copper
High-grade copper was a star performer during February on the back of tightening supply and optimism on several Chinese fronts. However, we maintain our view from last week that the current consolidation has further to go for the aforementioned reasons, with the market taking aim at the area of support below $2.86/lb.
Copper
Source: Saxo Bank

Quarterly Outlook

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
    Read full article
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

    Read full article
  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
    Read full article
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
    Read full article
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

    Read full article
  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
    Read full article
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
    Read full article
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
    Read full article
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
    Read full article
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
    Read full article
Disclaimer

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000
Australia

Contact Saxo

Select region

Australia
Australia
Products & pricing
Asset Management
    Platforms
    Accounts & service
    General
    Other
    Legal

    Trading can result in losses. Please ensure you understand the risks.

    The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

    Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

    Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

    Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

    The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

    Please click here to view our full disclaimer.