WCU: Gold strength spreads to silver and platinum

The agriculture sector, troubled by tariffs and ample supply, bore the brunt of the selling. American pork prices tumbled with expanded production failing to meet an expected pick up in overseas sales - especially from China where prices have surged as the country’s pork supplies have slumped due to African swine fewer.  Corn sold off and following a roller-coaster ride, returned to the May low before bouncing back on the news that Trump, under pressure from angry farmers, would boost quotas for grain-based biofuels. Apart from news on the biofuel front, the next focus for the US grain market will be the upcoming harvest season. Beginning September 9, the US Department of Agriculture will release weekly harvest progress reports.

Gold’s impressive rally, which began with the collapse in global bond yields back in early June initially, left other metals with weaker fundamentals trailing. However, after reaching a six-year high and with speculative longs hitting record levels, investors have begun looking for relative value in other metals such as silver and platinum during the past couple of weeks.

This expansion of safe-haven demand saw platinum head for its biggest weekly gain since 2015 with the discount to gold crumbling by 80 dollars during this time to 600 dollars. The gold-silver ratio measuring the value of one ounce of gold in ounces of silver dropped to 83 after topping out recently at a multi-decade high above 93.

We maintain a bullish outlook for precious metals with the outlook for global growth, the direction of short and long-term interest rates and a prolonged trade war between the US and China providing the necessary support. Renewed dollar strength may provide a challenge in the short-term but as long as gold remains above $1490/oz, we are unlikely to see any major appetite for adjusting long positions.

Brent crude oil remains trapped in a narrowing trading range as the outlook for future demand remains clouded with a great deal of uncertainty. Supported by Opec production cuts and falling US crude stocks, the market managed to stabilize despite China announcing a 5% tariff on US crude oil imports from September 1.

Brent crude oil’s attempt to recover has on several occasions throughout August been met with resistance around $61.50/b.  Together with the downtrend from April this is the area that needs to be broken for short-covering and renewed momentum buying to emerge. However, while the technical outlook has improved, we continue to see a challenging road ahead given the recessionary risks being signaled through the collapse in global bond yields and the inversion of the US yield curve.