Commodity Spotlight Precious Metals

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1 Secure your Commodity Research Commodity Spotlight research access today! Commodity Spotlight Precious Metals Outlook 218: gold sets the tone The gold price should rise for the third consecutive year on the back of low or even negative real interest rates and ongoing political uncertainty in Europe and the US. Silver is likely to outperform gold slightly thanks to robust industrial demand and rather more buoyant investment demand again, thereby reducing its undervaluation somewhat. Because the fundamental data do not allow for any intrinsic strength of the platinum price, platinum is expected to follow the course of the gold price again in 218. Palladium is unlikely to climb any further after its 5% surge to a 17-year high this year as the tailwind from the automotive industry should abate. Gold Gold rose markedly in the first eight months of the year to just shy of $1,36 per troy ounce in early September, but lost almost $1 since then. Whereas gold in US dollars has risen by 8% since the beginning of the year, gold in euro terms has actually fallen by 3%, despite having achieved significant gains in the first four months (Chart 1). The gold price is likely next year to continue the rise it commenced two years ago. The main contributory factors here remain the extremely loose monetary policy pursued by nearly all key central banks, resulting in ongoing very low to negative interest rates. Political uncertainty is also likely to be a constant feature throughout the year. One example worth mentioning is the difficult process of forming a government in Germany, the outcome of which remains unclear. Parliamentary elections will probably be held in Italy in the spring of 218 and could spark renewed unrest in the Eurozone. It also remains to be seen whether the separatist tendencies in Catalonia have merely moved onto the back burner or whether they will flare up again. Brexit is likely to become an increasingly hot topic during the course of the year if agreement is still not reached in the negotiations between the EU and the UK and the UK s disorderly exit from the EU becomes more likely in the spring of 219. Furthermore, there is no reason to assume that the second year of Donald Trump s presidency in the US will run any more smoothly in terms of domestic or foreign policy than the first one did. The implementation of the tax reform and the possible implications for monetary policy are likely to keep the market just as much on tenterhooks as the ongoing investigations into contacts between Trump s election campaign team and Russia. In addition, after having appointed Jerome Powell as the new Fed Chair, Trump will next year make several new appointments to the Fed s Board of Governors. This makes it more difficult to predict the future monetary policy approach of the US Fed. What is more, midterm elections to the US Congress will be taking place in the autumn of 218, which is likely to increase pressure on Trump and the Republicans to implement the tax reform. Otherwise there is a risk of the high-flying US stock markets correcting, which would benefit gold. 8 December 217 Commerzbank Forecasts 218 Q1 Q2 Q3 Precious metals Gold Silver Platinum Palladium USD per troy ounce CHART 1: Gold trends mixed in Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Gold in USD per troy ounce, left Gold in EUR per troy ounce, right For important disclosure information please see page 6 and 7. research.commerzbank.com / Bloomberg: CBKR Head of Commodity Research Eugen Weinberg eugen.weinberg@commerzbank.com Analyst Carsten Fritsch carsten.fritsch@commerzbank.com Analyst Barbara Lambrecht barbara.lambrecht@commerzbank.com Analyst Michaela Kuhl michaela.kuhl@commerzbank.com Analyst Daniel Briesemann daniel.briesemann@commerzbank.com

2 The numerous geopolitical crises should likewise generate latent uncertainty. These include in particular the North Korea conflict, the growing tensions in the Middle East between Saudi Arabia and Iran, and the conflict between the West and Russia over Russian influence in the US elections and in Eastern Ukraine. US President Trump s decision to recognise Jerusalem as Israel s capital and to move the US embassy there has added another potential source of conflict in the Middle East. Last but not least, the crisis in Venezuela threatens to further escalate. No significant headwind for gold from monetary policy Higher taxes and stricter regulation hold back demand in India Admittedly, the Fed has already raised interest rates twice this year, and is likely to do so for a third time in mid-december. Our economists expect three further rate hikes next year. However, this does not necessarily preclude a rising gold price, as 217 has shown. This is because other central banks apart from the Fed such as the Bank of England and the Bank of Canada have also increased interest rates in the meantime, which reduces the benefits of the rate hikes for the US dollar. The ECB is also planning to withdraw gradually from its ultra-expansionary monetary policy and will first be scaling back and then discontinuing its bond purchases next year. Because the ECB reinvests the revenues from the maturing bonds, however, next year s ECB balance sheet total will rise further. The first rate hike by the ECB will probably not come until 219 in any case. By then the Fed should have the bulk of its rate hike cycle behind it, which the market will probably anticipate to some extent. No significant headwind can thus be expected for gold from monetary policy, especially as the interest rate level remains historically low. In real terms, i.e. deducting the rate of inflation, interest rates in the US are only marginally above zero (Chart 2). They are even firmly in negative territory in Germany. It comes as no surprise then that the World Gold Council attested higher per-capita demand for gold here in Germany than in China or India. Physical gold demand should generate somewhat more tailwind next year. It was fairly subdued in 217. The World Gold Council (WGC) expects gold demand in India ultimately to reach a mere tons after a strong first half of the year, putting it at a similarly low level as last year. Demand fell away when a goods and services tax was levied on gold purchases with effect from 1 July. Furthermore, the government in its battle against money laundering brought in stricter documentation obligations for the purchase and sale of gold jewellery in August. The private acquisition of gold had already been made more difficult by regulatory restrictions imposed by the government in previous years. A glance at Indian gold imports also illustrates the declining dynamism of demand: they averaged 87 tons per month in the first half of the year, but less than 5 tons per month in the third quarter (Chart 3). It is possible that the goods and services tax on gold jewellery in Dubai, which is scheduled to come into force on 1 January 218, will encourage Indian consumers to buy somewhat more gold jewellery at home rather than making their purchases in Dubai in a bid to avoid the import duty. The consultant firm Metals Focus estimates that Indian tourists buy 9-1 tons of gold jewellery abroad first and foremost in Dubai each year. A reduction of the duty on gold imports to India, which is currently at 1%, would have a similar effect. According to Metals Focus, a reduction of two percentage points is conceivable here, which would remove the incentive for Indian tourists to buy gold in Dubai. That said, demand is hardly likely to recover noticeably in 218 unless the Indian government relaxes the regulations again. CHART 2: Low real interest rates still positive for gold Real interest rate: US 1-year bond yield minus US inflation rate, Gold price in USD per troy ounce US real interest rate, left Gold price, right CHART 3: India importing much less gold since mid-217 in tons Source: RBI, Bloomberg, Commerzbank Research 2 8 December 217

3 Weaker jewellery demand but higher demand for bars and coins in China Weak demand in the US, robust demand in Germany CHART 4: Chinese consumers buy less gold jewellery, but more bars and coins in tons, 217 estimate The WGC is somewhat more optimistic about gold demand in China this year, predicting a figure of tons. That said, gold demand in China has also been on the decline for years three years ago it still totalled 1, tons, and as much as 1,35 tons in 213. Demand for gold jewellery has been decreasing since 214, whereas demand for bars and coins has been on the increase since 215 (Chart 4). This is due to a shift in demand preferences in Chinese households: rather than buying pure gold, the Chinese prefer jewellery with a lower gold content. What is more, jewellery manufacturers are increasingly offering better-designed products in a bid to improve their margins. These products likewise contain less pure gold than conventional gold jewellery. By contrast, demand for coins and bars is profiting from the fact that Chinese consumers are concerned about a loss of purchasing power brought about by currency depreciation and inflation. In addition, the measures taken by the authorities to combat the shadow banking system and overheating on the real estate market are likely to generate demand among private households for gold as a store of value. This year s surge in the cryptocurrency Bitcoin is also attributable to this group to a large extent. The decline in gold jewellery seems to have come to an end, which suggests that overall consumer demand will increase, assuming that demand for coins and bars continues to grow. Admittedly, Chinese net gold imports from Hong Kong are 16% down year-on-year after ten months this year (Chart 18, Page 9). This is probably not a correct reflection of the strength of consumer demand, however, but can be attributed to the lack of purchases made by the Chinese central bank this year. Because the gold produced in China is no longer being bought up by the central bank, import demand is declining. Physical gold demand in the West is likewise down this year, due in particular to very subdued demand for bars and coins in the US. It is not even half as high as last year, and at its lowest level since 27 (Chart 5). The rate hikes implemented by the US Federal Reserve, high risk appetite and high-flying US stock markets noticeably reduced buying interest in US bars and coins. Whether this will also be the case in 218 will depend mainly on the US tax reform. If implemented, demand for gold bars and coins in the US will probably remain low. This is because US stock markets are then likely to make further gains. The Fed could raise interest rates more pronounced in that scenario. However, if the tax reform is not implemented, or only in a much-diluted form, the correction that would then be likely on the stock markets could well kick-start gold demand. Furthermore, the US Fed would then probably take its time before raising interest rates further. Robust gold demand in Germany was only able to partially offset the weak demand in the US this year. Germany at least is also likely to see high demand for bars and coins in 218 given that real interest rates are still firmly in negative territory, which means losses for savers. The numerous political risks in Europe also point to solid gold demand in other European countries * CHART 5: Slump in demand in the US, robust demand in Germany Demand for bars and coins in tons, 217 estimate Jewellery Bars & Coins USA Germany Source: WGC, Commerzbank Research Source: WGC, Commerzbank Research 8 December 217 3

4 Gold ETFs see inflows, but with abating dynamism Central bank purchases at seven-year low because of China s abstinence Environment constructive for gold in 218 thanks to low real interest rates and numerous risk factors Gold ETFs look set to record net inflows for the second consecutive year in 217. They had amounted to just shy of 23 tons by the end of November, though the lion s share of the inflows took place in the first half of the year. On balance, ETF investors have hardly bought any gold at all since the end of September (Chart 6). The net purchases of 47 tons recorded last year are unlikely to be achieved, in other words. Distinct regional trends can also be identified with respect to the gold ETFs: the biggest net inflows were registered by ETFs listed in Germany. By contrast, the world s largest gold ETF the SPDR Gold Trust that is listed in the US recorded only minor net inflows. The numerous uncertainties and low real interest rates suggest that we will also see net inflows into gold ETFs in 218. How pronounced these turn out to be will depend to a large extent on whether stock markets continue to fly high or whether they correct. The latter could happen if the tax reform plans in the US were to fail, if the global economic outlook became cloudier or if the (geo-) political risks were to escalate. Central banks have bought considerably less gold this year. Metals Focus estimates that net purchases in 217 will fall to a seven-year low of 37 tons as compared with a figure of nearly 65 tons in 213 (Chart 7). It is striking that the Chinese central bank has reported no further gold purchases for a year. After ten months, the Russian central bank is responsible for more than half of all the central bank purchases this year. Venezuela s national bankruptcy could mean that the gold reserves put up by the central bank as collateral for loans might be sold by the investment banks involved. According to the WGC, Venezuela s official gold holdings decreased by a good 17 tons in 215 and 216, which probably corresponds to the amount of gold used for the swap transactions. This special case notwithstanding, there is much to suggest that central banks will also remain net buyers next year. Besides Russia, China should also return to the market as a buyer. The central banks of other emerging economies such as Turkey and Kazakhstan are also likely to further top up their gold reserves. The environment for gold will remain constructive in 218. Although central banks are gradually scaling back their ultra-expansionary monetary policy, they are still far from becoming restrictive. A further moderate increase in key interest rates is on the agenda only in the US. This is not expected to happen next year in Europe, which should keep real interest rates at a low and in some cases negative level. The opportunity costs of holding gold thus remain close to zero or indeed negative, which points to stronger investment demand in the West. Numerous political uncertainty factors in Europe and the US, as well as a number of potential sources of geopolitical crisis, are likely to boost demand for gold additionally. Gold demand in Asia should have bottomed out and increase moderately in 218. The gold price is likely to rise during the course of the year and to be trading at $1,35 per troy ounce by the end of 218. One risk factor for gold is the US tax reform. If this is fully implemented, the rally on the stock markets could continue, meaning that gold is in less demand accordingly. CHART 6: Gold ETFs see inflows Month-on-month change in gold ETF holdings in tons Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov monthly change, left year-to-date, right CHART 7: Central banks buy less gold for the 2 nd year in tons, 217 estimate Source: WGC, Metals Focus, Commerzbank Research 4 8 December 217

5 Silver price underperforming gold Silver demand falls to fiveyear low in 217; silver market in surplus Silver should profit from growing industrial demand in 218 Silver With just a few exceptions, the silver price followed the movements of the gold price in 217. Silver performed best in the first quarter, when it unequivocally outshone gold. In mid-april, silver achieved its yearly high to date at $18.7 per troy ounce (Chart 8). The gold/silver ratio already reached its low of 67.5 in early March, however. Since mid-april, silver has been significantly underperforming gold. Mid-July saw the price plunge to a 15-month low of $15.3. Silver is nearing this level again in early December. Hence, all gains accrued since the beginning of the year have completely melted away again. The gold/silver ratio climbed to 79.4 in early December, its highest level since April 216. The price ratio began the year at 72. As such, silver has underperformed gold. Silver should actually have done better than gold in the second half of the year thanks to the positive economic trends and increased risk appetite. Furthermore, Chinese silver imports after ten months are already higher than in 216 as a whole, which points to robust industrial demand (Chart 2, Page 9). Current figures from Thomson Reuters GFMS and the Silver Institute relating to silver demand this year may explain what happened. They show that industrial demand grew by 3.4% to million ounces, but that demand for bars and coins slumped by more than a third to 13.1 million ounces, the lowest figure since 29. This caused overall silver demand to decrease by 4.9% to a five-year low of million ounces (Chart 9). Global silver supply is set to stagnate at 1,8.3 million ounces, on the other hand. A 1.8% fall in mining production looks set to be offset by increased availability of scrap silver. Thus the global silver market will show a physical supply surplus of 32.2 million ounces again for the first time in five years. ETF demand is not sufficient to absorb the physical supply surplus. GFMS and Silver Institute envisage net inflows of 14.9 million ounces, i.e. a 7% decline year-on-year. This estimate may even prove too optimistic, for the silver ETFs tracked by Bloomberg actually show outflows of nearly 8 million ounces after eleven months. At a gold/silver ratio of more than 78, the silver price is low in historical terms. Hence, silver has catch-up potential vs. gold. The positive economic development is likewise an argument in favour of silver because it means that industrial demand is likely to become even more dynamic which accounts for more than half of total silver demand. It is hard to imagine that demand for bars and coins will fall as sharply again. Given that it is entirely conceivable that demand for bars and coins will be stronger, as well as demand from ETF investors, demand growth is likely to be even more pronounced. That said, silver mining production is also likely to increase. After all, most silver is produced as a by-product of copper, zinc and lead, and mining production of these base metals will probably be expanded in response to the much increased prices (see Outlook 218 Base Metals). Nonetheless, we see good chances of a market deficit which, in conjunction with the rise in the gold price we expect, should drive the silver price up to $18 by the end of 218 in which case the gold/silver ratio would decrease to 75. CHART 8: Silver price shows relative weakness Gold/silver price ratio, silver price in USD per troy ounce CHART 9: Silver market in surplus for first time in five years due to weaker demand in million ounces Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Gold/Silver ratio, ls Silver (USD per troy ounce), rs * Physical supply Physical demand Source: Thomson Reuters GFMS, Silver Institute, Commerzbank Research 8 December 217 5

6 Palladium with biggest gains, platinum ranking near bottom Palladium profiting from robust automotive demand in US, China and Europe and from the shift from diesel to gasoline cars in Europe Platinum / palladium One man s joy is another man s sorrow. While palladium has soared by approx. 5% since the beginning of the year, achieving the best price performance of all commodities we track this year, platinum has not risen at all, putting it towards the bottom of the commodities ranking. At its peak, palladium reached over $1,3 per troy ounce at the end of November, putting it at its highest level in almost 17 years. Platinum is a long way from achieving anything similar it has been fluctuating all year within a range of between $9 and $1, per troy ounce with few exceptions, and recently came close to the yearly low of $89 it recorded in mid-july. While platinum still cost a good $2 per troy ounce more than palladium when the year began, the price differential was reversed in late September (Chart 1). By early December it reached $12 in favour of palladium. The last time palladium was even more expensive than platinum was in April 21. Whereas platinum spent the year moving largely in harmony with the other precious metals, palladium detached itself during the course of the year and went its own way. The gap has been widening ever since the end of April (Chart 11), palladium profiting from robust demand for cars with gasoline engines. The automotive industry accounts for roughly 8% of total palladium demand. Palladium is used primarily in autocatalysts for gasoline engines. Admittedly, the two leading auto markets the US and China were showing significant tendencies towards weakness in the first eight months of the year, yet sales figures in the US recovered noticeably in the two following months as new cars were bought following the hurricanes. Sales figures in China have likewise risen sharply in September and October. New passenger car registrations in the EU are set to increase in 217 for the fourth year running to reach their highest level since the record year of 27. Cars with gasoline engines profited to a disproportionately high extent from this upswing. This is because there has been a shift in buying patterns in Europe as a result of the diesel emissions scandal and a discussion about banning old diesel vehicles from city centres. Whereas diesel vehicles still accounted for nearly 5% of all new cars registered in Western Europe last year, the proportion dropped to 45% in the first ten months of the current year. In October it was only 42% a decline of seven percentage points in the space of one year (Chart 12, Page 7). In Germany, the leading sales market, the proportion of newly registered diesel passenger cars was even down to just 35% (as compared with 44% last year). Given that passenger cars with alternative engines account for only a negligible proportion of all new cars sold, despite their numbers having risen considerably, the proportion of gasoline cars is likely to rise accordingly. All the same, the upside potential for palladium is doubtless limited. After all, it can hardly be assumed that the shifts from diesel to gasoline cars will continue at the same rate as they have in the past twelve months for as long as tax breaks for diesel fuels remain in effect. Despite all the negative reporting, diesel is still the more environmentally-friendly fuel in terms of consumption and carbon emissions. CHART 1: Palladium clearly outshines platinum in USD per troy ounce Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Platinum Palladium CHART 11: Palladium detached from other precious metals 1 Jan. 217 = Jan. 17 Mrz. 17 Mai. 17 Jul. 17 Sep. 17 Nov. 17 Gold Silver Platinum Palladium 6 8 December 217

7 Substitution of palladium by platinum could become issue among auto manufacturers Palladium market in deficit Platinum demand outside the automotive sector to rise, while mine supply from South Africa falls Palladium price potential largely used up, platinum price still in gold s slipstream Furthermore, the shift in the price differential is likely to prompt auto and autocatalyst manufacturers to consider replacing palladium with platinum. 17 years ago, when palladium was last as expensive as it is today and considerably more expensive than platinum, precisely this kind of substitution was made, which weighed substantially on the palladium price in subsequent years. History is unlikely to repeat itself 1:1, however. Back then, platinum still cost $3 less than today, while palladium was at its current price. In other words, either palladium would need to rise or platinum would need to fall significantly. In addition, the gasoline autocatalysts of the time used a larger quantity of palladium than platinum, whereas today it is roughly the same amount. This reduces the costs saving and will probably preclude any larger-scale substitution. Nonetheless, substitution is bound to be an important issue in the coming year if the price gap continues to shift in favour of palladium. Due to strong demand from the automotive industry, the global palladium market is likely to show a substantial supply deficit in 217. Johnson Matthey, the world s largest refiner of platinum group metals, put the deficit at 792, ounces in its May estimate. This would be the sixth year of deficit in a row. A sizeable supply deficit is also on the cards for next year; Johnson Matthey will be releasing its latest forecasts in February 218. The market situation for platinum is the exact opposite: in May, Johnson Matthey predicted a supply surplus of 32, ounces for 217. In view of the weak demand for diesel vehicles in Europe, this figure is likely to be upwardly revised again in February. This would see the platinum market oversupplied for the first time in six years. By contrast, the World Platinum Investment Council (WPIC) envisages a supply deficit of 275, ounces for next year, despite declining sales of diesel vehicles. In this context the WPIC is assuming that platinum demand from the automotive industry will be down by a mere 1%, which seems rather optimistic. Thanks to jewellery demand increasing again for the first time in four years and higher demand from other industrial sectors, platinum demand as a whole is even set to grow by 2% to 8.3 million ounces. Furthermore, the WPIC expects platinum supply to fall by 1% next year. This is because mining production in South Africa is set to decrease by 2% following extensive mine closures there due to low prices. The country accounts for roughly 7% of global platinum mining production. Somewhat higher recycling supply is not sufficient to offset this completely. After soaring by approx. 5% to a 17-year high this year, we believe that the upside potential for the palladium price is largely used up. Though a further rise cannot be ruled out in the short term, the substitution debate is likely to put the brakes on the high-flying prices. What is more, car sales in the US and China are hardly likely to maintain their high level of recent months, and dynamism will presumably abate in Europe. We see palladium at $1, per troy ounce at the end of 218. The platinum price should continue to follow the gold price. As we envisage a rising gold price, platinum should also make gains though the fundamental data mean that platinum is hardly likely to develop any intrinsic strength. This would require an increase in investment demand, yet the WPIC expects it merely to stagnate. Platinum is likely to climb to $1, per troy ounce by the end of 218. CHART 12: Palladium profits from declining interest in diesel cars in Western Europe Diesel cars as proportion of new passenger car registrations, in percent CHART 13: Platinum demand and platinum supply almost equal in million ounces, 217 and 218 WPIC estimates Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct * forecast * 218* Automotive Jewellery Industry Investment Supply Source: LMC Automotive, Commerzbank Research Source: WPIC, Commerzbank Research 8 December 217 7

8 At a glance TABLE 1: Our forecasts USD per troy ounce Quarterly average Yearly average 7-Dec Q1 18 Q2 18 Q3 18 Q4 18 Q1 19 Q2 19 Q3 19 Q Gold Silver Platinum Palladium Quarterly averages, based on spot prices; TABLE 2: ETF holdings (weekly data) Total net change % change 52 weeks Date Holdings 1 week 1 month 1 year 1 year High Low Gold ETFs (in ' ounces) Silver ETFs (in ' ounces) Platinum ETFs (in ' ounces) Palladium ETFs (in ' ounces) TABLE 3: Net long positions of money managers (weekly data) Total net change % change 52 weeks Date Level 1 week 1 month 1 year High Low Gold (in ' contracts) Silver (in ' contracts) Platinum (in ' contracts) Palladium (in ' contracts) Source: CFTC, Bloomberg, Commerzbank Research TABLE 4: History Current % change History USD /oz 7-Dec 1 week 1 month y-t-d y-o-y Q115 Q215 Q315 Q415 Q116 Q216 Q316 Q416 Gold Silver Platinum Palladium TABLE 5: World Official Gold Holdings (monthly data) Country tons Country tons USA 8,133.5 Russia 1,778.9 (+34.5) Germany 3,373.7 Switzerland 1,4. IMF 2,814. Japan Italy 2,451.8 Netherlands France 2,435.9 India China 1,842.6 ECB 54.8 Source: World Gold Council, Commerzbank Research TABLE 6: Upcoming Events 12 /13 Dec USA FOMC meeting, followed by press conference, Minutes will be published on January 3 14 December EUR ECB meeting, followed by press conference 14 December EUR New car registrations November 28 December CHN Gold imports via Hong Kong November 3 January USA Vehicle sales, December Early February WGC Gold Demand Trends 4 th Quarter and full year February JM PGM market report, review 217 and outlook 218 Source: Fed, ECB, WGC, Johnson Matthey, Bloomberg, Commerzbank Research 8 8 December 217

9 CHART 14: Net long positions of money managers (Gold) ' contracts Speculative net longs, left Source: CFTC, Bloomberg, Commerzbank Research CHART 16: US dollar versus gold Gold (USD/oz.), right US-Dollar Index (inverted), ls Gold (US$/oz.), rs CHART 18: Chinese net gold imports via Hong Kong in tons in tons Jan-1 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Source: Statistics Department of HK, Reuters, Commerzbank Research CHART 2: Chinese silver imports CHART 15: Gold: ETF holdings in mm oz ETF holdings, left CHART 17: US real interest rates versus gold Gold price (US$/oz), right Real interest rates, left CHART 19: Indian gold imports in tons Gold (US$/oz), right Jan-1 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Source: RBI, Bloomberg, Commerzbank Research CHART 21: Gold/Silver ratio ytd in tons Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Ounces of silver per ounce of gold Source: Chinese Customs Authority, Commerzbank Research 8 December 217 9

10 v Commodity Research Commodity Spotlight Precious Metals CHART 22: Net long positions of money managers (Silver) ' contracts spec. net long positions, ls Source: CFTC, Bloomberg, Commerzbank Research Silver (US$/oz.), rs CHART 24: Net long posit. of money managers (Platinum) ' contracts spec. net long positions, ls Source: CFTC, Bloomberg, Commerzbank Research Platinum (US$/oz), rs CHART 26: Net long posit. of money managers (Palladium) ' contracts spec. net long positions, ls Source: CFTC, Bloomberg, Commerzbank Research Palladium (US$/oz), rs CHART 28: Price difference platinum vs gold (US$/oz) CHART 23: Silver: ETF holdings in mm oz ETF holdings, ls CHART 25: Platinum: ETF holdings in ' oz Silver price (US$/oz), rs ETF holdings, ls CHART 27: Palladium: ETF holdings in ' oz Platinum price (US$/oz), rs ETF holdings, ls Palladium price (US$/oz), rs CHART 29: Price difference platinum vs palladium (US$/oz) December 217

11 In accordance with ESMA MAR requirements this report was completed 8/12/217 12: CET and disseminated 8/12/217 12:5 CET. This document has been created and published by the Research department within the Corporate Clients division of Commerzbank AG, Frankfurt/Main or Commerzbank s branch offices mentioned in the document. Commerzbank AG is a provisionally registered swap dealer with the CFTC. If this report includes an analysis of one or more equity securities, please note that the author(s) certify that (a) the views expressed in this report accurately reflect their personal views; and (b) no part of their compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or views expressed by them contained in this document. The research analyst(s) named on this report are not registered / qualified as research analysts with FINRA. 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12 Hong Kong: This document is furnished in Hong Kong by Commerzbank AG, Hong Kong Branch, and may only be received in Hong Kong by professional investors within the meaning of the Securities and Futures Ordinance (Cap.571) of Hong Kong and any rules made there under, and persons whose ordinary business is to buy or sell shares or debentures. Japan: This information and its distribution do not constitute and should not be construed as a "solicitation" under the Financial Instrument Exchange Act (FIEA). This information may be distributed from Commerzbank international branches outside Japan solely to "professional investors" as defined in Section 2(31) of the FIEA and Section 23 of the Cabinet Ordinance Regarding Definition of Section 2 of the FIEA. Please note that Commerzbank AG, Tokyo Branch has not participated in its preparation. Not all financial or other instruments referred to in this information are available within Japan. You should contact the Corporate Clients division of Commerzbank AG for inquiries on availability of such instruments. Australia: Commerzbank AG does not hold an Australian financial services licence. This document is being distributed in Australia to wholesale customers pursuant to an Australian financial services licence exemption for Commerzbank AG under Class Order 4/1313. Commerzbank AG is regulated by Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) under the laws of Germany which differ from Australian laws. People s Republic of China (PRC): This document is furnished by Commerzbank AG and is only intended for institutions that are eligible for financial transactions. No-one else may rely on any information contained within this document. Any derivative transactions by PRC persons may only be entered into by PRC financial institutions which are permitted to conduct derivatives business in the PRC and have obtained all necessary regulatory approvals in the PRC. Commerzbank AG 217. All rights reserved. Version 9.27 Commerzbank Corporate Clients Frankfurt Commerzbank AG London Commerzbank AG New York Commerz Markets LLC Singapore Commerzbank AG Hong Kong Commerzbank AG DLZ - Gebäude 2, Händlerhaus Mainzer Landstraße Frankfurt PO BOX Gresham Street London, EC2P 2XY 225 Liberty Street, 32nd floor, New York, NY , Robinson Road, #12-1 Singapore th Floor, Lee Garden One 33 Hysan Avenue, Causeway Bay Hong Kong Tel: Tel: Tel: Tel: Tel: December 217