Precious Metals: Mixed Fortunes

We expect increasing price divergence between precious metals over the coming quarters. Gold prices have rebounded 4.0% since hitting a three-year low of US$1,195/oz in December 2013. However, the medium-term outlook for gold remains precarious. We expect prices to buckle under the pressure of rising US Treasury yields on the back of an improving US economy. In contrast, we continue to expect platinum and palladium prices to hold up better.

The liquidation of gold investments, particularly holdings in exchange-traded funds (ETFs), will continue to build and offset the price-supportive impact of rampant Chinese demand. Demand growth for gold will be stemmed by import restriction in India, as well as reduced appetite from central banks to diversify their reserve holdings away from the US dollar. We forecast gold prices to average US$1,150/oz in 2014, compared with an average of US$1,409/oz in 2013 ( see 'Gold Prices To Average US$1,150/oz In 2014, December 20, 2013).

In contrast, the outlook for platinum and palladium is more positive. While prices for both metals were weighed down by deteriorating sentiment towards the precious metals complex in 2013, this is unlikely to be sustained in 2014. Subdued growth in mining supply, coupled with improving demand for catalytic converters, should prevent significant additional declines in prices.

Less Precious With Rising Yields
Spot Gold (US$/oz) & Generic US 10 Year Treasury Yield (%, Inverted)

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Sector: Commodities

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