WCU: Gold strength spreads to silver and platinum WCU: Gold strength spreads to silver and platinum WCU: Gold strength spreads to silver and platinum

WCU: Gold strength spreads to silver and platinum

Ole Hansen

Head of Commodity Strategy

Summary:  Precious metals shone during August while the Bloomberg Commodity Index overall continued lower in response to concerns about the outlook for global growth and with that demand for key commodities.

The Bloomberg Commodity Index, which tracks a basket of major commodities, evenly spread between energy, metals and agriculture, traded lower for a second month in a row during August. This is in response to continued concerns about the outlook for global growth and with that demand for key commodities. Trade hostilities between the US and China continued to ebb and flow which created a challenging environment. Not only for commodities but also bonds and stocks as the market tried to keep up with announcements from both Washington and Beijing.

Crude oil traded lower despite Opec keeping production tight with future demand worries more than off-setting strong seasonal demand. Industrial metals were mixed with strong gains in nickel being off set by losses elsewhere, led in particular by zinc. Iron ore suffered one of its worst months ever slumping by a quarter as supply disruptions in Brazil and Australia eased while demand from Chinese mills showed signs of cooling.

Most of the focus however was once again centered on precious and platinum group metals. After reaching a six-year high at $1555/oz, gold has stalled with investors looking for relative value jumping into silver and platinum. Two metals, which up until August had seen their relative discount to gold, reached historic levels. 

Source: Bloomberg, Saxo Bank

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.

Source: Saxo Bank

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research 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 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. To the extent that any content is construed as investment research, you must note and accept that the 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 under relevant laws.

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

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo 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 or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

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. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

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

The information or the products and services referred to on this site 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 are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

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