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Insights.abnamro.nl/en
Precious Metals Watch
06 July 2016
New precious metal forecasts
Sharp price rally since the Brexit referendum
We have been asked three questions lately. Why have gold and silver prices rallied
sharply? Why has silver outperformed gold? Do we expect further upside in prices? Gold
and silver prices have rallied substantially since the Brexit referendum and silver has
considerably outperformed gold prices. Safe haven demand, the market pricing out of Fed
rate hikes this year and next year and more BoE and ECB monetary policy easing are the
main reasons behind the price rally. In addition, silver’s outperformance is mainly a catch-
up to gold in thinner market conditions as silver prices were relatively more attractive. Our
forecasts for the end of September (USD 1,350 per ounce gold) and end of December
(USD 20 per ounce silver) have been reached. This has resulted in a sharp drop the
gold/silver ratio (in line with our view). What is more, speculative net long positions in both
gold and silver are excessive and make prices vulnerable to an abrupt change in
sentiment. Though the overall outlook is positive.
Net long speculative positions excessive in gold… …and silver
Number of contract in gold Number of contracts in silver
Source: Bloomberg, ABN AMRO Group Economics Source: Bloomberg, ABN AMRO Group Economics
0
100,000
200,000
300,000
400,000
10 11 12 13 14 15 16
Long contracts Short contracts Net positions
0
40,000
80,000
120,000
10 11 12 13 14 15 16
Long contracts Short contracts Net positions (lhs)
Group EconomicsMacro & Financial MarketsResearch
Georgette Boele
Co-ordinator FX & Precious Metals
Strategy
Tel: +31 20 629 7789
georgette.boele@nl.abnamro.com
• Sharp rally in prices since the Brexit referendum…
• …and we expect higher prices in Q3 2016
• But profit taking in Q4 2016 and Q1 2017 because of anticipation of
Fed rate hikes in 2017
• We expect such a sell-off in prices to be temporary …
• …and to be an opportunity to position for higher prices afterwards…
• …as the overall longer-term outlook remains bullish
2 Precious Metals Watch - New precious metal forecasts - 06 July 2016
Replay of April-May?
There are some concerns that we may see a replay of the end of April’s price action. The
month of May brought sharply falls in both gold and silver prices because financial
markets started to anticipate for Fed rate hikes this year. Will this also happen in July,
August or September? We don’t think so. We don’t expect Fed rate hikes this year (in line
with market consensus) and the anticipation of possible Fed rate hikes in 2017 is still 3 to
six months away. There is a risk that stronger-than-expected US data and/or surprisingly
hawkish Fed commentary would start this process earlier. But this is not our base case. In
addition, the environment remains very supportive gold and silver. For a start, we don’t
expect a strong rally of the US dollar (only versus sterling) and this will help gold and silver
prices as they are proxy currencies. Moreover, demand for safe haven assets will likely be
alive in the short-term.
Any sell-off to be temporary as longer-term outlook remains positive
The overall bullish outlook for precious metal prices will not change in our view. The
reason behind the Fed rate hikes is crucial for its effect on the US dollar. We expect
moderate US growth and some pick-up in inflation expectations triggering the Fed to hike
rates. This is not a major bull-case for the US dollar as US real rates will unlikely move
higher. This will remain a supportive driver for gold and other precious metal prices.
US real yields likely to remain supportive for gold… …and silver
Gold price 10y US real yields (reverse scale) Gold price 10y US real yields (reverse scale)
Source: Bloomberg, ABN AMRO Group Economics Source: Bloomberg, ABN AMRO Group Economics
Gold is not expensive… …neither is silver
Index Index
Source: Bloomberg, ABN AMRO Group Economics Source: Bloomberg, ABN AMRO Group Economics
-4
-3
-2
-1
0
1
2
31,000
1,200
1,400
1,600
1,800
2,000
10 11 12 13 14 15 16
Gold price (lhs) 10y US real yields (rhs)
-4
-3
-2
-1
0
1
2
310
20
30
40
50
10 11 12 13 14 15 16
Silver price (lhs) 10y US real yields (rhs)
100
300
500
700
00 02 04 06 08 10 12 14 16
Gold/EUR index Gold/GBP indexGold/USD index Gold/JPY index
0
200
400
600
800
1,000
00 02 04 06 08 10 12 14 16
Silver/EUR index Silver/GBP indexSilver/USD index Silver/JPY index
3 Precious Metals Watch - New precious metal forecasts - 06 July 2016
In addition, as the graphs above show gold and silver prices are still at relatively attractive
levels despite the rally so far this year. They should continue to attract investors as central
banks globally (such as the BoE and the ECB) continue to have accommodative policies
and prices of other assets with some safe haven characteristics are more expensive. Net-
long speculative positions in gold and silver may be extreme, but total positions in gold
ETFs are far from extreme and still have room to increase (see graph below).
Total known ETF positions vs gold price
In million troy ounces Gold price USD/ounce
Source: Bloomberg, ABN AMRO Group Economics
Moreover, slowly but surely we expect global growth to improve modestly over time and
this should result a some upward adjustment in cyclical demand expectations for silver,
platinum and palladium. This and the relatively attractive price levels of cyclical precious
metals compared to gold should result in an outperformance of silver, platinum and
palladium compared to gold.
Silver outperformance to gold is underway… …while platinum’s outperformance has not started yet
Gold/silver ratio Gold/platinum ratio
Source: Bloomberg, ABN AMRO Group Economics Source: Bloomberg, ABN AMRO Group Economics
New forecasts
To reflect all the dynamics above we have adjusted our precious metals forecasts. We
now expect more strength in gold and silver prices in Q3. We have adjusted Q4 2016 and
Q1 2017 forecasts to reflect the temporary impact of expectations of Fed rate hikes in
2017. This would be an opportunity to buy precious metals as the long-term trend remains
positive.
200
600
1,000
1,400
1,800
2,200
0
20
40
60
80
100
96 98 00 02 04 06 08 10 12 14 16
Total ETF positions gold (lhs) Gold price (rhs)
20
40
60
80
100
90 92 94 96 98 00 02 04 06 08 10 12 14 16
Gold/silver ratio
0.4
0.6
0.8
1.0
1.2
1.4
90 92 94 96 98 00 02 04 06 08 10 12 14 16
Gold/Platinum ratio
4 Precious Metals Watch - New precious metal forecasts - 06 July 2016
ABN AMRO precious metals forecasts
Changes in red/bold
Source: ABN AMRO Group Economics
Find out more about Group Economics at: https://insights.abnamro.nl/en/
DISCLAIMER
This document has been prepared by ABN AMRO. It is solely intended to provide financial and general information on economics.The information in this document is strictly proprietary and is being supplied to you solely for your information. It may not (in whole or in part) be reproduced, distributed or passed to a third party or used for any other purposes than stated above. This document is informative in nature and does not constitute an offer of securities to the public, nor a solicitation to make such an offer.
No reliance may be placed for any purposes whatsoever on the information, opinions, forecasts and assumptions contained in the document or on its completeness, accuracy or fairness. No representation or warranty, express or implied, is given by or on behalf of ABN AMRO, or any of its directors, officers, agents, affiliates, group companies, or employees as to the accuracy or completeness of the information contained in this document and no liability is accepted for any loss, arising, directly or indirectly, from any use of such information. The views and opinions expressed herein may be subject to change at any given time and ABN AMRO is under no obligation to update the information contained in this document after the date thereof.
Before investing in any product of ABN AMRO Bank N.V., you should obtain information on various financial and other risks and any possible restrictions that you and your investments activities may encounter under applicable laws and regulations. If, after reading thisdocument, you consider investing in a product, you are advised to discuss such an investment with your relationship manager or personal advisor and check whether the relevant product –considering the risks involved- is appropriate within your investment activities. The value of your investments may fluctuate. Past performance is no guarantee for future returns. ABN AMRO reserves the right to make amendments to this material.
© Copyright 2016 ABN AMRO Bank N.V. and affiliated companies ("ABN AMRO").
New
End period 06-Jul Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17
Gold 1,366 1,061 1,233 1,322 1,425 1,350 1,300 1,400 1,425 1,450
Silver 20.2 13.9 15.38 18.48 21.50 19.00 18.00 20.00 22.00 24.00
Platinum 1,071 894 976 1,018 1,150 1,050 1,000 1,200 1,300 1,400
Palladium 601 562 563 597 620 600 580 625 650 700
Average Q1 16 Q2 16 Q3 16 Q4 16 2016 Q1 17 Q2 17 Q3 17 Q4 17 2017
Gold 1,181 1,258 1,374 1,388 1,300 1,325 1,350 1,413 1,438 1,381
Silver 14.9 16.8 20.0 20.3 18.0 18.5 19.0 21.0 23.0 20.4
Platinum 975 1,004 1,084 1,100 1,041 1,025 1,100 1,250 1,350 1,181
Palladium 527 568 609 610 578 590 603 638 675 626
Old
End period 06-Jul Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17
Gold 0 1,061 1,233 1,300 1,350 1,370 1,370 1,400 1,425 1,450
Silver 0.0 13.9 15.38 18.00 19.00 20.00 21.00 22.00 23.00 24.00
Platinum 0 894 976 1,100 1,150 1,200 1,250 1,300 1,350 1,400
Palladium 0 562 563 620 640 660 680 700 720 740
Average Q1 16 Q2 16 Q3 16 Q4 16 2016 Q1 17 Q2 17 Q3 17 Q4 17 2017
Gold 1,181 1,266 1,325 1,360 1,283 1,370 1,385 1,413 1,438 1,401
Silver 14.9 16.7 18.5 19.5 17.4 20.5 21.5 22.5 23.5 22.0
Platinum 975 1,038 1,125 1,175 1,078 1,225 1,275 1,325 1,375 1,300
Palladium 527 592 630 650 600 670 690 710 730 700
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