Challenging Investment Climate for Precious Metals


Last week’s proceedings were dominated by strong selling pressure in most commodities. The collective economic data coming out of China, the US and Europe has been muted, at best. The interest rate expectations have changed, and there have been some comments made by members of the Federal Reserve Bank that interest rate rises must be expected towards the end of 2013. These official comments also seem to make the possibility of Quantitative Easing 3 in the US unlikely, at least at this stage. This scenario probably represents one of the most challenging investment climates for precious metals in the past few years.

A higher yielding interest rate environment, where the holding of commodity long positions becomes more expensive to fund, and a climate for a potentially stronger US dollar, have proven negative for precious metals in the past, especially for gold. Platinum and palladium have been the biggest losers in the precious metals market over the course of last week, with only gold able to close just above the previous week’s close.

Gold: US $ 1663.00 – up US $ 3 from last week. Gold traded several times below the low US $ 1630 levels and recovered very nicely on Friday to end up the week in positive territory. Gold came under pressure as part of an overall selling pressure directed towards the commodities sector. Interest rate expectations, China’s economic slowdown, the momentary disappearance of headlines concerning the European sovereign debt crisis, and the slow recovery of the US economy, have all contributed to a major change in how the whole
commodity sector is currently been evaluated.

India, announced last weekend a rise in the taxation for gold imports from two to four per cent, and that is expected to have a major impact on the amount of physical gold exported to India. We are not sure that a strike is helping at a time when the market needs all the buying it can muster, but a point was made by the Bombay Bullion Association. Maybe this can lead to some re-thinking in the Indian Government.

Gold had done very well, under the circumstances, and it would already be a success in my view, if the current levels could be held for a little longer and a consolidation period between US $ 1630 and US $ 1700 could be put in place.

The physical markets have been slow and not been able to pick up the slack resulting from the selling pressure. The physical buying from our customer base in Dubai has been solid and is encouraging, but the bigger markets like India and Shanghai have not shown any positive signals.

Option volatilities midrates: Gold atm (at the money)

1 month 15.70 % down 0.30 %
3 month 16.50 % down 0.20 %
6 month 18.00 % down 0.20 %
1 year 19.50 % down 0.25 %

Premium 1kg Gold bars loco Dubai (DGD 995 fine) against loco London: US $ 0.50
EFP Spot Gold to April Comex: US $ minus 0.50
ETF: Holdings are at 2476 tons overall, down 14 tons from last week
Support: 1623 and 1590 Resistance: 1665 and 1705

Silver: US $ 32.22 – down US $ 0.28 since last week. Silver traded down to the US $ 31.20 level during the mid-week and recovered on Friday evening to close above the US 32 level. The “hybrid” silver was treated like an industrial precious metal and therefore came under the immense selling pressure experienced for most commodities. Long positions have been further reduced and more new short positions have been established, according the Commitment of Traders Report (COTR). The establishment of new short positions is of interest, as this could provide a spark to the upside if the investment community were looking to squeeze these short positions out of the market.

Option volatilities midrates: Silver atm (at the money)

1 month 31.00 % up 1.50 %
3 month 32.50 % unchanged
6 month 33.50 % unchanged
1 year 34.50 % unchanged

EFP Spot Silver to May Comex: US $ minus 1 cent
ETF: Holdings are at 15185 tons, 25 tons down from last week
Support: 30.55 and 28.92 Resistance : 32.88 and 34.63

Platinum: US $ 1623 – down US $ 44 since last week. The “industrial” precious metals got drawn into this week’s general commodities liquidation. The sell-off in base metals dragged platinum and palladium down as the slowdown, especially in the Chinese economy, is gradually becoming more apparent. The imports of Platinum Group Metals (PGM`s) into China are down by over 50 percent year on year, and that might also have played a role in the decision taken by the investment community to liquidate some of their long positions in the market. Platinum is trading again in a discount of US $ 40 to gold and the development of the next few weeks should be closely monitored.

Option volatilities midrates: Platinum atm (at the money)

1 month 18.50 % down 1.00 %
3 month 21.50 % down 1.00 %
6 month 23.50 % down 0.50 %
1 year 25.00 % down 0.50 %

EFP Spot Platinum loco Zurich to April NYMEX: US $ 1.00
ETF: Holdings are now at 48 tons
Support: 1600 and 1562 Resistance: 1700 and 1724

Palladium: US $ 653 – down US $ 45 since last week. The same commentary for platinum also applies to palladium and the economic outlook seems to restrict palladium inside the US $ 600 to US $ 700 range. This might seem a wide range but there are enough fundamental reasons that make palladium look cheap at US $ 600, and it also looks unsustainable at above US $ 700 in the current economic climate. We think patience is required.

Option volatilities midrates: Palladium atm (at the money)

1 month 28.00 % up 2.00 %
3 month 30.00 % up 0.50 %
6 month 32.00 % unchanged
1 year 34.00 % unchanged

EFP Spot Palladium loco Zurich to June NYMEX: US $ 0.50
ETF: Holdings are now at 61 tons
Support: 648 and 612 Resistance: 700 and 715

Emirates NBD is proud to announce that it will be serving as the Title Sponsor of the upcoming Dubai Precious Metals Conference, together with Standard Bank. An initiative from the DMCC, and organised by Foretell Business Solutions, the Dubai Precious Metals Conference will take place from April 29 – 30, 2012. All the information about this important conference can be found on


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