Precious Metals Weekly: Another wild ride in the markets


Another wild ride in the markets and the “safe haven” Gold was very much included in the proceedings. There has been see‐saw action in all the major stock markets and sell‐off in commodities, whilst the US$ is strengthening. The only real change came towards the end of the week and that was down to the fact that the US was no longer simply pointing the finger at the Eurozone. There is also growing uncertainty about the state of the Chinese economy.

A soft landing with reduced growth rate would be fine but the signs are that a hard landing cannot anymore be excluded, and that could help push the major economies back into recession. The commodity markets have stabilized on lower levels towards the end of the week, but especially Platinum, Palladium could find themselves at the end of another bout of selling in the very near future.

Slovakia, the country which will most likely be the last Eurozone country looking to ratify the European Financial Stability Facility (EFSF) agreement, does not have a majority for ratification at this moment in time. The Neo‐liberal coalition partner firmly plans to vote against the bail‐out and the opposition does also not seem willing to lend a helping hand. The Slovakian Government urges “a” decision, one way or another, before the EU‐Summit on 17th October.

Gold: 1623.50 – down $33.00 on the week. Gold had a torrid time last week and I think we have to re‐classify Gold simply as an asset class in its own rights. The safe haven status becomes debatable if Gold moves more than $250 in total down and up in a single day, like it did early last week.

There has been news about more Central Banks buying Gold in the open market. This is one segment of buyers who are not explicitly price sensitive as they conduct their purchases as part of an asset allocation measured against their total overall assets and their investment time horizon is normally for a substantial period. Thailand and Bolivia have been the prominent “new” buyers and that should also help to stabilize the market at these current levels. We think that this buying from official sources will be on going and might soon be competing with an array of potential buyers.

Physical buying is expected to strengthen now all‐the‐time with Diwali becoming the focal point for the Indian population on Oct. 26th. Gold is trading currently with up to $100 premium to Platinum and I expect this to continue for the foreseeable future.

Option volatilities midrates : Gold atm

1 month 33.00 % up 4.00 %
3 month 31.00 % up 2.60 %
6 month 30.75 % up 3.00 %
1 year 30.50 % up 3.00 %

EFP (Exchange for physical) midrate: Gold spot to December Comex : $ 1.70
ETF: Holdings stand currently at 2314 tons overall
Support: 1580 and 1528 Resistance: 1673 and 1708
OUTLOOK: Neutral

Silver: 29.90 – down $1.22 on the week. Just take one look below towards the volatilities for Silver and that tells you a major part of the story. Silver dropped 18 per cent on Monday and recouped the lot. Amazing and so so dangerous. Silver is continuing to pay the price for being everybody’s darling earlier in the year and it seems to be unable to escape its industrial precious metals heritage. The level of long positions in the market have already been greatly reduced and Silver seems to be steadying itself around the $30 mark. We do expect Silver to be the major beneficiary if Gold can not only hold but start to rally in the last quarter.

Option volatilities midrates : Silver atm (at the money)

1 month 69.00 % up 24.50 %
3 month 58.00 % up 13.50 %
6 month 52.00 % up 7.50 %
1 year 47.50 % up 3.00 %

EFP: (Exchange for physical) midrate : Silver spot to December Comex : 1 US cent
ETF: The total holdings are now 14790 tonnes
Support: 29.05 and 26.10 Resistance: 32.68 and 34.00
OUTLOOK: Neutral

Platinum: 1522 – down $86 on the week. Platinum has been the big loser of the week. The discount to Gold has widened to $100 and even though Platinum seems oversold in the very short term, we feel that the significant discount to Gold is here to stay. The strength of the US$ has not helped the SA Rand and that in turn has had a negative impact on the Platinum price as well. A worldwide economic slowdown, encompassing now also potentially China will have severe implications for the PGM`s and that will be the scenario between now and the end of the year.

Option volatilities midrates : Platinum atm (at the money)

1 month 28.00 % up 4.75 %
3 month 28.00 % up 4.75 %
6 month 28.00 % up 4.50 %
1 year 28.00 % up 3.00 %

ETF: Holdings are now at 47.5 tons.
Support: 1500 and 1455 Resistance: 1575 and 1600

OUTLOOK: Bearish

Palladium: 609 – down $26 for the week. Palladium has not fared as badly as Platinum but the outlook is still negative We do expect another test of the $605 level and we think that Palladium can retreat down towards $550 in the next few weeks.

Option volatilities midrates : Palladium atm (at the money)

1 month 34.50 % up 6.50 %
3 month 34.00 % up 5.00 %
6 month 33.75 % up 3.75 %
1 year 33.50 % up 2.50 %

ETF: Holdings are now at 61 tons in total.
Support: 605 and 570 Resistance: 660 and 685
OUTLOOK: Bearish

By: Gerhard Schubert, Head of Precious Metals, Emirates NBD


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