Gold loses luster, but silver shines a little brighter


The physical buying from the Chinese participants were encouraging, but not anywhere near the staggering amounts purchased in the previous week. However, there was still elevated interest from India and the overall picture is that of ongoing tightness, especially in the 995 kilo bar market.

Economic Background


  • The European Central Bank (ECB) lowered the interest rate for the Eurozone to 0.5 per cent, its lowest level since the introduction of the Euro. Furthermore, ECB President Mario Draghi reiterated that the ECB will act, if needed. Mario Draghi also stated that the ECB is considering the possibility of a negative interest rate scenario.
  • The Euro Commission revised the forecast for the 2013 GDP numbers stating that it expects a shrinkage of 0.4 per cent, while the growth forecast for 2014 was also slashed to 1.2 per cent, instead of the earlier projected 1.4 per cent growth. The unemployment rate in the Eurozone is expected to stay at or above 12 per cent into 2014.


  • The April Non-Farm-Payroll numbers were announced as 165.000. and that was much stronger than expected. There has also been strong upward revision to the February and March numbers. The February number was revised upward to 332.000, while the March number was revised from just 88.000 to a more meaningful 138.000. The overall headline unemployment number fell to 7.5 per cent, the lowest number since December 2008.
  • The Federal Reserve Bank (FED) mentioned in this week’s statement, that the FED is prepared to increase as well as decrease the monthly bond purchases, based on the economic data flows and the development in the US economy. This was the first time that the FED did not categorically rule out an increase in Quantitative Easing (QE) spending.
  • Factory orders fell in March by 4 per cent and the February number was also revised to the downside to show only a 1.9 per cent gain.


  • The Non-Manufacturing Purchasing Managers Index (PMI) fell in April to 54.5, down from 55.6 in March. This figure represents the changing importance in the economy data flows out of China.
  • The service industry contributed in the first Quarter of 2013 more to the overall GDP figure in China, than the manufacturing industry. This is a first for the Chinese economy, and could demonstrate the shifting policies towards domestic demand instead of relying solely on export markets.


  • The Indian Rupee finished the week at 53.81 to the US dollar.
  • The Reserve Bank of India cut the interest rate from 7.5 per cent to 7.25 per cent.

Gold: $1470.50 – up $8.00 from last week.

The price for gold is trading now at a discount of $29.50 with the price for platinum.
The ETF outflows, which are reportedly large and significant so far this year, may not be all what they seem to be. There has been a major change in the pricing structure for gold holdings in unallocated accounts in Switzerland. It has been reported that some Swiss banks have made it more expensive for their customers to hold metal in unallocated accounts than in allocated accounts. The reason for that might be that the banks will have a much higher capital requirement for gold held in unallocated accounts, as they are an on-balance sheet item for the bank. Allocated accounts are by definition segregated and customer holdings in these accounts are an off-balance sheet item for the bank. The bank simply acts as a custodian for the allocated gold accounts. This could mean that some of the outflows have actually been switched into another form of holding. Finally, on this subject, there cannot be any doubt about the intensity of the outflows seen already over the first four months of the year, and this is by no means an attempt to make these outflows sound any more attractive for the bullion market.

The FED statement concerning the possible ending or curtailment of QE was taken relatively easy by the market, but last Friday’s NFP numbers, plus the revisions for February and March, gave a much stronger outlook for the US economy than previously thought. There are still conflicting economic data but the trend seems to be of a growing and stronger recovery.

This will not be positive for the outlook for gold, unless there are inflationary tendencies visible, and we might be years away from that scenario. The current price levels are comfortable, but it seems that our customers are looking to liquidate, at least some of their holdings, between $1490 and $1520. It seems that this could be a prudent strategy, from a technical point of view, with an equal desire to buy back the sales if prices should be able to overcome the – by now very strong resistance area of $1530. A confirmed break, based on a NY closing level above $1540 would be such an event.

Lastly, there has been renewed interest into the production costs of major mining companies. We have been given some research which indicates, that some of the major mining companies are operating at an all-in-cost production levels between $1350 and even up to $1450. These are major gold producers and the chance for a relief through currency depreciation is not logical as the debasement of the major currencies put already upward pressures on developing currency levels. Don’t be fooled by cash cost levels, as they are not giving the real picture.

The latest Commitment of Traders Report (COTR) (end of business day 30 April, 2013), shows a further reduction of long positions, while short positions have decreased, in a significant way, as a result of the enormous physical buying and price rally.

Silver: $24.12 – up $0.07 from last week

Silver prices have stabilized and closed, even though only marginally, on the upside. The swings in silver have been their usual self, with daily movements of three to four per cent being rather the norm than the exception.

The ETF holdings have not only kept stable, but have actually increased, in line with increases of ETF holdings for all “white” precious metals. This means, in my opinion, that the investment community expects a stronger growing economy in the near future, and silver could and should be a beneficiary of this development. It appears that we might have seen the lows in silver prices for the time being, unless gold prices would come again under heavy and renewed pressure, which would have a very negative effect on silver. This scenario does not appear to be on the cards yet, but it could materialise rather quickly, if gold cannot break through the $1530 level in the very near future.

This would categorise the huge physical buying seen and strong sentiment purely into the basket of a sharp but ultimately failed short covering rally.

The latest COTR (end of business day 30 April 2013), shows that the long positions have decreased, while short positions have also decreased.

Platinum: $1500 – up $22 from last week

The price for platinum is now at a premium of $29.50 with the price for gold.

Platinum prices have performed well and have actually provided stability for the whole precious metals segment last week, with the growing interest into a new Platinum ETF out of Johannesburg. The outlook for platinum prices looks better with the renewed, more positive economic data from the US (NFP in particular), while the Chinese economy seems to be slowing down again. The Chinese economy still shows staggering growth advances, well into the seven per cent levels, but the world, including investors in platinum, would like to see a return towards the nine or even double digit growth numbers in China.

Europe is lagging behind the US and China, that is in general economic terms, as well as specifically in the automotive industry, but the markets have already taken this into account with prices for platinum reflecting this kind of new normal.

The latest COTR (end of business day 30 April, 2013), shows that the long positions have marginally increased, and short positions have decreased.

Palladium: $693 – up $14 from last week

Palladium did well last week. It attempted and failed a couple of times to move and close above the US $700 level, but it was not to be. The major shipment from Russia into Zurich, as reported in last weekend’s report, still casts a shadow over the market. The interest in palladium from the investment community is still very strong and ETF holdings have increased by nearly two tonnes. The positive outlook can only be underlined, but it might take the market a little longer to regain the lofty highs seen earlier in the year, of around US $770 level. It appears that there is no major visible threat to palladium, other than potential investor fatigue, but we believe that potential lower levels would be used for further purchases from strong industry participants.

The latest COTR (end of business day 30 April, 2013), shows that the long positions have decreased, and short positions have also decreased. However, the change in positions for both longs and shorts are so miniscule, that they do not really have any information value at all.


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