Gone for now is the roaring bond engine which back in June helped the yellow metal break above $1380/oz and with that out of its multi-year range. But despite seeing bond yields stabilize following their rapid decent, U.S. stocks near record high and the outline of a trade deal emerging, gold has nevertheless managed to avoid a major correction.
An indication that it remains in demand, not only from short term speculative players – who otherwise would have tried to send the market lower to squeeze out longs - but also real money investors looking for diversification amid a slowing global growth outlook and various geo-political risks.
At the annual London Bullion Market Association conference just held in Shenzhen, China, the attendees were asked in survey to say where gold, silver, platinum and palladium would be trading by this time next year. The results were the following:
- Gold: $1658/oz (+12%)
- Silver: $23/oz (+33%) and equalling a XAUXAG ratio of 72 versus 86 currently
- Platinum: $1182/oz (+34%)
- Palladium: $1924/oz (+10%)
While not that surprising to see expectations for higher prices it was the sharp recovery in silver and platinum that caught my attention. Such out-performance is likely to assume that fiscal stimulus programs may emerge to replace failed central bank experiments with low and negative interest rates.
The below charts show some of the current drivers impacting the price of gold and with that also silver and to a lesser extent platinum. The recent rise in real yields and reduction in global negative yielding debt from 17 to the current but still formidable 13.4 trillion dollars have both helped reduce but not remove the appetite for investment metals.
Total holdings in bullion backed exchange-traded funds have seen a relentless rise since May and is currently just 26 tons below the December 2012 record. Hedge funds maintain a near record net-long through futures and it is the potential reduction from this category of traders that currently poses the biggest challenge.