The state of metals: April 2016

An insight into how metals have performed the year to date, and how they move in the year ahead from Pallion Group and  ABC Bullion general manager Nicholas Frappell.

Gold

Gold finished April at A$1701, up A$110 per Tozs compared with the opening price of the month, a gain of almost 7 % on the month in Australian dollar terms, with the AUD assisting the rally by around 1 %.

Weak US economic numbers right at the end of the month help give gold a push, with poor Core Durable goods orders, at -0.20 % instead of the expected 0.60 %, and softer advance GDP figures at 0.50 % q/q. The final week of the month saw the Dollar Index (DXY) fall from 95.10 to close near the lows at 93.082.  (We now expect dollar rallies to be capped around 94.50 in May in Index terms.)

For Australia, it was the very weak quarterly CPI numbers that pushed the Australian dollar down on the 27th of April and conversely helped gold in A$ terms.

Investor interest via CME futures showed a net increase of 1.91 million Ftoz, which was composed of a 2.20 million increase in gross longs and a 287,000 increase in shorts as managed money funds increased their confidence in gold’s outlook. As a matter of interest, this increase in longs took place at a volume weighted average in US$ terms of around US$1245.

There should be some caution attached to the rapid growth in long positioning. After all, futures longs have risen by almost 14 million Ftoz since the end of December, and at the end of April, they stood at levels not seen since July/August of 2011, when the gold price was significantly higher.

Gold ETF movements showed some slight disinvestment during April, with about 564,000 Ftoz of selling.

With higher prices, physical demand is likely to be weaker through the month.

In technical or chart terms the month was notable for gold finding support on the upper level of the Daily Ichimoku cloud, and for a week or so the price threatened to break lower into that area. Overall price action was constructive and created longer-term targets to the US$1372 level.

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Silver

Silver rocketed by 15.60 % in US$ terms during April, or 16.40 % in AUD terms, as investor attention turned to this most mercurial of precious metals.

CME futures net length grew by 98.36 million Tozs during April, of which 98.36 million was additional buying from longs, and 35.35 million was buying from shorts covering back positions.

This futures buying took place at a volume-weighted average of US$17.29.

Global ETF positioning grew by 8 million Tozs during April – which is about 1.25 %..

April was a special month for silver on the technical front. For the last five years, every time silver had rallied, it had hit technical resistance at a specific area, and although it had penetrated into this band of resistance, it never made it through the other side. Of course, this band of resistance lowered as the price lowered. There are seven episodes since November 2011 where this level defeated silver, and April of this year saw a breach of that level. To confirm that bullish signal, silver needs to see a weekly close above US$18.05.

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 Platinum

Platinum rose by 10.35 % during April, opening at US$976 spot and closing the month at around US$1,077 as a long and orderly rally from last year’s lows unfolds. The price is still below cash costs for most South African producers and from a fundamental aspect the rally could continue for a while. The discount to gold has recovered somewhat from the very extended (-US$315 low) levels seen in March, but still remains very low when you consider that the average premium to gold has been US$235.46 for the decade since April 2006.

Auto sales remained positive with EU car sales in March showing a rise of 6.00 %, the 31st consecutive month of growth and a strong ‘first quarter’, up 8.20 %. These figures are usually released mid-April, ,and would have confirmed the positive industrial demand for the metal. Commercial vehicle registrations in the EU were up 8 % and 15.20 % for the first two months of the year, with heavy duty Diesel demand being good for platinum overall.

Managed money futures saw a very sharp increase, with about 360,000 Tozs purchased. Shorts purchased around 100,000 Tozs, at a volume-weighted average price on the futures of US$999.

Global ETFs saw total length rise by about 51,000 Tozs, or roughly 2 % of total holdings.

The fundamental and technical outlook for platinum remains fairly strong, with the caveat that car and trucks sales cannot keep growing forever, with weak economic data and rising energy costs acting as headwinds, just as the massive drop in US gasoline prices had a positive impact on consumer decisions and helped decent demand for car purchases there in, the subsequent rally in crude, coupled with weak US housing starts, may act to dampen demand.

With support at US$1,000 and above, platinum has targets towards US$1,170 and US$1,200, which would tend to align it more closely with producer cash costs.

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Palladium

Palladium’s behaviour in April could be defined by one group: futures short-sellers. In a game of two halves, they increased their positions in the first fortnight of the month by selling 260,000 Tozs. They subsequently bought back about 307,000 Tozs by the beginning of May. The price moved up adjacent to a bank of long-term resistance, making the high of the year at US$635 (spot) at the end of the month.

Meanwhile speculative longs did very little indeed. The volume-weighted average was about US$577.00

Global ETFs grew by around 31,000 Tozs or around one tonne. This, and the behaviour of longs in the futures exchange, suggest that investors are not terribly excited about Palladium, and do not regard fundamentals as appealing.

Technical aspects of palladium suggest that a move to US$678 ‘could’ unfold in the longer term, with support at US$585, however the macro picture is still one of lower highs and lower lows, with traders trying to capture moves within an overall downtrend.

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