Precious Metals Drivers

Transcription

1 COMMODITIES 22 August 217 Important Notice: The circumstances in which this publication has been produced are such that it is not appropriate to characterise it as independent investment research as referred to in MiFID and that it should be treated as a marketing communication even if it contains a research recommendation. This publication is also not subject to any prohibition on dealing ahead of the dissemination of investment research. However, SG is required to have policies to manage the conflicts which may arise in the production of its research, including preventing dealing ahead of investment research. Weekly Extract from a report Precious Metals Drivers Robin Bhar (44) robin.bhar@sgcib.com The World Gold Council recently published its Gold Demand Trends Q Gold demand in 1H 217 slowed 13% yoy to 2,26t, as weaker investment and jewellery demand took its toll. Gold supply declined 1% yoy in 1H 217, mainly due to a sharp fall in recycling, while mine production was flat and de-hedging totalled 22.5t. Precious Metals market scoreboard (see full scoreboard on next page) Bear Bull Gold Neutral: Rallying on weaker USD and falling bond yields but capped above $1,3. Silver Neutral: Tracking gold movements closely and underperforming. Platinum Neutral: More balanced market than previously thought but tracking gold. Palladium Bullish: The most industrial of the precious metals complex. Metal for immediate delivery remains tight. Summary The World Gold Council (WGC) published data on supply and demand in 2Q and 1H 217. The WGC reported Q2 gold demand of 953.4t was 1% lower than 216, while 1H demand slowed 13% to 2,26.1t. Year-on-year comparisons were affected by record ETF inflows in 216: demand from this sector slowed dramatically after last year s 1H surge. Central bank net purchases of 176.7t were also slightly lower in 1H 217 (-3%). By contrast, bar and coin investment improved, as did jewellery demand, although the latter remains weak in a long-term context. Total gold supply declined 1% yoy in 1H: mine production was steady while recycling levels continued to drop back after the 216 surge. Relative price performance since January 217 Index (2 January 217 = 1) 14 Gold Silv er Platinum Palladium Jan-17 1-Mar Apr Jun Aug-17 3 month price history Last price Minimum Maximum Gold Silver Palladium Platinum Forecasts vs forward price Q4-17 vs. fwd Q1-18 vs. fwd Q2-18 vs. fwd Gold 1 2-7% % % Silver % % % Palladium -14% -14% 825-1% Platinum 93-6% 95-4% 975-2% Please see disclaimer and disclosures at the end of this document

2 Scoreboard Precious Metals Drivers Scoreboard Precious metals market scoreboard Bear Bull Gold Neutral: Rallying on weaker USD and falling bond yields but capped above $1,3. Market fundamentals Central banks to keep interest rates lower for longer in the absence of inflationary pressures. EUR/USD Consolidating this month ahead of Jackson Hole symposium later this week. US economic outlook Latest FOMC minutes show the Fed inclined to pursue balance sheet reduction ahead of rate hikes. Geopolitical outlook Geopolitical tensions unchanged - Middle East/Korean peninsular.. Funds positions Rise in net spec long positions of 26.1% to 187.7k lots in week to Aug 15, on fresh buying and short covering. Implied probability indicator No clear indication from the options market this week. Technical analysis Daily shooting star denotes possibility of a near-term retracement. Support is at $128, resistance at $13/132. Silver Neutral: Tracking gold movements closely and underperforming. Market fundamentals Net speculative length is rebuilding on expectation that Fed rate hikes could be delayed. Gold/Silver ratio At 75.4 compared to 72.3 at the end of 216. Base metals Base metals probing the upside, dips are well supported. Funds positions Technical analysis Rise in net spec long positions of 14.7% to 38.9k lots in week to Aug 15, on short covering and some fresh buying. Projection for the fifth wave at $17.27/17.32 is an interim hurdle. Support is at $16.72 and resistance at $ Platinum Neutral: More balanced market than previously thought but tracking gold. Market fundamentals Limited supply cuts and lacklustre fabrication demand to see global market broadly balanced. USD/JPY/ZAR USD weaker against EUR, stronger against ZAR and JPY. Funds positions Rise in net spec long positions of 1.9% to 27.2k lots in week to Aug 15, on short covering. Technical analysis Palladium Market fundamentals Initial pullback likely but trend line at $967/961 should cushion it. Support is at $954 and resistance at $991. Bullish: The most industrial of the precious metals complex. Metal for immediate delivery remains tight. Market in chronic deficit; continued gains in auto demand (developing markets and gaining share from diesel). Palladium/Platinum spread At 39.7 compared to 22.7 at the end of 216. Funds positions Fall in net spec long positions of.9% to 21.3k lots in week to Aug 15, on fresh selling. Platinum/Palladium ratio Currently at 1.5 compared to 1.33 at the end of 216. Fixings: Gold: $1,284.2 Silver: $17.2 Platinum: $982 Palladium: $ August 217 2

3 Editiorial Precious Metals Drivers Editiorial Gold trends 1H 217: Demand falls but so does supply Gold prices rose by 7.7% in 1H 217, a good performance, but not as impressive as the 24.6% rise recorded in the year-ago period. To understand the various factors and the role they play in determining the gold price, industry consultants and other organisations regularly provide updates on supply and demand trends. WGC: Gold supply and demand 1H-16 1H-17 Y-o-Y % change Supply Mine production 1, ,557.1 Net producer hedging Recycled gold Total supply 2, , Demand Fabrication Jewellery Technology Sub-total above fabrication 1,76.6 1, Total bar & coin demand ETFs & similar products Central bank & other institutions Gold demand 2, , Surplus/Deficit Total demand 2, , Source: World Gold Council The World Gold Council (WGC) published data on supply and demand in 2Q and 1H 217 (see summary table above). The WGC reported Q2 gold demand of 953.4t was 1% lower than 216, while 1H demand slowed 13% to 2,26.1t. Year-on-year comparisons were affected by record ETF inflows in 216: demand from this sector slowed dramatically after last year s 1H surge. Central bank net purchases of 176.7t were also slightly lower in 1H 217 (-3%). By contrast, bar and coin investment improved, as did jewellery demand, although the latter remains weak in a long-term context. Total gold supply declined 1% yoy in 1H: mine production was steady while recycling levels continued to drop back after the 216 surge. Net change in gold demand (1H17 vs. 1H16 in tonnes) Net change in gold supply (1H17 vs. 1H16 in tonnes) H-17 Mine production Net producer hedging Recy cled gold H-16 Net change Source: WGC, SG Cross Asset Research/Commodities 22 August 217 3

4 Precious Metals Drivers Editiorial 1H jewellery demand recovered but remained below 1,t Global demand for gold jewellery of 48.8t was 8% higher y-o-y, but 2Q 216 was itself very weak; demand remained well below the five-year quarterly average of 586.2t. The 1H picture was similar: demand grew 5% from the very low levels of 216, but at 967.4t, 1H jewellery demand was below 1,t for only the fourth time in the WGC s data series. 1H jewellery demand recovers but remains below 1,t Bar and coin demand is up yoy, but remains relatively subdued Source: WGC, SG Cross Asset Research/Commodities India drove global 2Q jewellery demand growth almost single-handedly. Demand shot up to 126.7t compared with just 89.8t in 2Q 216. The strong recovery had been widely expected after exceptional import figures were reported, hitting an all-time high of 14.6t in May as the market stockpiled gold ahead of the June GST rate announcement. Demand was boosted by festivals, weddings and improved rural sentiment. Chinese jewellery demand weakened again, but the pace of slowdown has moderated this year. Jewellery demand of 137.7t (down 5% y- o-y) was the lowest 2Q in China for five years. But the overall downward trend of the last three years has slowed so far in 217: 1H demand was 4% below H Investment demand falls 34% yoy in 2Q, down 34% yoy in 1H Investment demand, including ETFs and bar and coin demand, reached 296.9t in 2Q, down 34% yoy. The 1H saw investment demand falling 34% yoy to a total of 7t. Investors continued to buy gold-backed ETFs in 2Q: global AUM grew by 56t. By the end of June, holdings of ETFs had reached 2,313t (worth US$92.4bn), the highest month-end total since October last year. 1H holdings were up by 167.9t. And while this pales in comparison with last year s record growth, it nonetheless signals a continued interest in gold investment among institutional investors. After 1 months of unhindered inflows in 216, investment in goldbacked ETFs during the first half of 217 have been rather more erratic. Bar and coin demand in 2Q rose 13% compared to the same period last year. The 1H performance was strong too, with demand up 11%. Although encouraging to see demand bounce, the figures are flattered somewhat by exceptionally weak demand in 1H 216. When the longer-term trend is considered, 2Q demand of 24.8t was below both the five-year and three-year quarterly averages of 36.1t and 263t respectively. In China, bar and coin demand increased in 2Q to 62.6t, a rise of 56% yoy. 22 August 217 4

5 Precious Metals Drivers Editiorial Official sector demand up 2% yoy in 2Q, down 3% yoy in 1H Central bank net purchases totalled 94.5t in 2Q, 2% higher than the same quarter of 216 but below the 5-year average of 135.2t. The increase in global gold reserves was almost entirely driven by sizeable purchases from a small number of central banks (Russia, Kazakhstan and Turkey). Net purchases reached 176.7t y-t-d, 3% lower than 1H 216 (182.5t). Gold used in technology up 2% yoy in 2Q, up 2.2% yoy in 1H Gold used in electronics rose 2% y-o-y to 64.3t in 2Q. For 1H 217 the total reached 16t, a rise of 2.2% yoy. Bright spots were seen across key sectors, from bonding wire to LEDs and PCBs. The bonding wire sector grew by 11% y-o-y. Tight supply of memory chips, at a time of strong demand, saw manufacturers producing at full capacity. Total gold supply declined 8% yoy in 2Q, down 1.2% yoy in 1H Mine production flat, production costs higher Mine production was virtually unchanged from 2Q 216, dropping by less than 3t to 791.2t the lowest second quarter since H output was also virtually flat at 1,557.1t. As with most quarters, increased production at some mines was offset by reductions at others. The WGC expect mine production to fall from 219 onwards. Although a small number of major projects are expected to come online by the end of 217, the project pipeline remains weak. And while major miners have improved cashflow and reduced debt over the last few years, production development expenditure remains at multi-year lows. It expects the project pipeline to see a small pick-up in 217 and 218 before global mine production levels begin to decline in 219. Early 217 saw costs rise again: 1Q all-in sustaining costs were 12% higher y-o-y. The stronger performance of some key producer currencies against the US dollar was the main driver, although higher mine-site costs and an increase in sustaining capital expenditure also contributed to the increase. But costs remain below their 213 peak. Decline in recycling 2Q saw a sizeable decline in recycling, dropping 18% to 279.9t from 342.5t in 2Q 216. The y- o-y comparison was again affected by the elevated levels of recycling seen in the first three quarters of 216, when the rapidly increasing global gold price, along with a tax amnesty in Indonesia, enticed consumers to cash in. The first half of 217 represents a continued normalisation of recycling in most markets. Net de-hedging Net de-hedging continued, albeit by a modest 5t, in the subdued 2Q price environment. Dehedging for 1H totalled 22.5t, in stark contrast to the 72.5t of hedging in 1H 216. The global hedgebook now stands at 228t, 22% lower y-o-y. Project and debt financing were again the primary motivations for gold hedging rather than any change in sentiment. 22 August 217 5

6 Gold Prices & C urves ' contracts Precious Metals Drivers Gold Prices & Curves Gold spot price ($/oz) Gold implied volatility curve (%) 1 1 Gold spot price ($/oz) 17% 16% 15% 14% 13% 12% 11% 1% 9% 1m 5m 9m 13m 17m 21m 25m 29m 33m Latest Last week Last month Gold forward curve Gold implied probability indicator - 1M ATM = $1, % 4% 132 3% % 1% 124 1m 5m 9m 13m 17m 21m 25m 29m 33m Latest Last week Last month % < to to 13 Latest 13 to to to to Last week >1425 NC net position on COMEX Gold NC share of COMEX Gold Open Interest (%) % 6% 5% 4% 3% 2% 1% % non-commercial net position Gold price (COMEX) non-commercial open interest (% of total) Source: COMEX, US CFTC & SG Cross Asset Research Source: COMEX, US CFTC & SG Cross Asset Research 22 August 217 6

7 Gold in C urrencies & i ndexes Precious Metals Drivers Gold in Currencies & indexes Gold price vs EUR/USD exchange rate Gold price (ZAR/oz and INR/oz) Gold spot price ($/oz) EUR/USD (rhs) INR/oz (lhs) ZAR/oz (rhs) Gold price (CAD/oz, AUD/oz and TRY/oz) Gold price vs US 1Y inflation expectations CAD/oz (lhs) AUD/oz (lhs) TRY/oz (rhs) Gold spot price ($/oz) US 1Y expected inf lation (rhs) Gold vs WTI, Copper & EUR/USD (rebased, 26=1) Gold XAU Equity Index vs gold price Gold spot Copper (LME 3M) Crude oil (WTI) EURUSD (rhs) Gold spot price ($/oz) XAU Index Source: LBM, NYMEX, LME & SG Cross Asset Research Source: PHLX & SG Cross Asset Research 22 August 217 7

8 Silver Prices & Curves Thousands contracts Precious Metals Drivers Silver Prices & Curves Silver spot price ($/oz ) Silver implied volatility curve (%) Silver spot price ($/oz) 26% 25% 24% 23% 22% 21% 2% 19% 18% 1m 5m 9m 13m 17m 21m 25m 29m 33m Latest Last week Last month Silver implied probability indicator - 1M ATM = $ XXX Silver price (INR/oz ) 4% 3% 2% 1% % <1 1 to to to to 1 1 to to 19 > Latest Last week Silver spot price (INR/oz) Gold/Silver & Silver/Copper ratios NC net position on COMEX Silver Gold/Silver Silver/Copper NC net position COMEX Silver price Source: LBM, LME & SG Cross Asset Research Source: COMEX, US CFTC & SG Cross Asset Research 22 August 217 8

9 Palladium & Platinum Prices Thousands contracts Thousands contracts Precious Metals Drivers Palladium & Platinum Prices Palladium spot price ($/oz) Platinum-Palladium spread ($/oz) 2 Palladium spot price ($/oz) Palladium/Platinum spot spread ($/oz) Source: NYMEX & SG Cross Asset Research Source: NYMEX & SG Cross Asset Research NC net position on COMEX Palladium Platinum price ($/oz) NC net position Palladium price (USD/oz, rhs) Platinum spot price ($/oz) Source: NYMEX, US CFTC & SG Cross Asset Research Source: NYMEX & SG Cross Asset Research USD/ZAR exchange rate NC net position on COMEX Platinum ZAR/USD NC net position Platinum price (USD/oz, rhs) Source: NYMEX, US CFTC & SG Cross Asset Research 22 August 217 9

10 Supply/Dem and Balance & Price Forecast Precious Metals Drivers Supply/Demand Balance & Price SG primary gold forecast tonnes f 218f Mine production 2,883 3,77 3,172 3,29 3,222 2, 2,7 Old gold scrap 1,71 1,33 1,158 1,172 1,268 1,15 1, Net official sector activity Net producer hedging Total Supply 4,8 4,1 3,759 3,965 4,254 3,7 3,45 Fabrication Jewellery 2,61 2,61 2,469 2,395 1,891 2, 2,1 Coin Industrial Bar hoarding 1,56 1, Total Offtake 3,893 4,91 4,32 3,919 3,299 3,279 3,29 Balance ETFs Surplus / (deficit) Gold Price 1,669 1,411 1,266 1,16 1,247 1,225 1,15 Source: GFMS, Thomson Reuters, SG Cross Asset Research/Commodities SG primary silver forecast kt f 218f Mine production Old Scrap Official sales Net producer hedging Total supply Demand Photography Industrial Jewellery+Silverware Bars, Coins and Medals Total demand Physical balance ETFs Residual balance LBMA Silver Price Source: GFMS, Thomson Reuters; SG Cross Asset Research/Commodities 22 August 217 1

11 Supply/Dem and Balance & Price Forecast Precious Metals Drivers Supply/Demand Balance & Price SG primary palladium forecasts koz f 218f Russian production 2,391 2,432 2,589 2,434 2, 2,7 2,7 South African production 2,624 2,527 2,125 2,684 2,64 2,49 2,45 Other 1,481 1,51 1,389 1,326 1,427 1,45 1,45 Estimated movement in 2 Russian inventory Total 6,896 6,669 6,13 6,444 6,667 6,64 6, Fabrication demand: Autocatalysts (net of scrap) 4,667 4,752 5,311 5,716 5,88 5,9 6, Electronics 1,5 1,378 1,358 1,29 1,25 1,26 1,28 Jewellery (net) Other 1,69 1,7 1,32 1,8 1,2 1,7 1,5 Total 7,69 7,495 7,973 8,158 8,293 8,43 8,55 Balance ,87-1,714-1,626-1,79-1,95 ETFs Total demand 8,57 7,495 8,872 7,428 8,93 8,43 8,55 Net balance -1, , ,426-1,79-1,95 Palladium price Source GFMS, Thomson Reuters; SG Cross Asset Research/Commodities SG primary platinum forecasts koz f 218f South African production 4,182 4,368 3,547 4,465 4,245 4,2 4,25 Russian production Other ,65 1,25 95 Mine production 5,796 6,12 5,143 6,15 6,25 5,96 5, Fabrication demand Autocatalysts (net of scrap) 1,932 1,798 1,838 2,55 2,6 2, 2, Jewellery (net) 2,74 2,156 2,32 2,365 2,3 2,1 1,95 Industrial and other 1,947 1,581 1,776 1,749 1,954 1,9 1,9 Total 5,953 5,535 5,646 6,169 6,314 6, 5,85 Balance ETPs Total demand 6,192 6,427 5,864 5,929 6,34 6, 5,85 Net balance Platinum price 1,551 1,487 1,388 1, Source: WPIC, GFMS, Thomson Reuters; SG Cross Asset Research/Commodities SG quarterly price forecast SG Precious Metals Forecast 216 Q1 17f Q2 17f Q3 17f Q4 17f 217f Q1 18f Q2 18f Q3 18f Q4 18f 218f 219f Gold $/oz 1,247 1,219 1,25 1,225 1,2 1,225 1,175 1,15 1,15 1,125 1,15 1,125 Palladium $/oz Platinum $/oz Silver $/oz August

12 Resear ch Contacts Precious Metals Drivers Research Contacts Global Head of Research Brigitte Richard-Hidden (33) brigitte.richard-hidden@sgcib.com CROSS ASSET RESEARCH COMMODITIES GROUP Head of Commodities Research Dr. Michael Haigh (1) michael.haigh@sgcib.com New York Natural Gas Oil & Products & Natural Gas Oil & Products Breanne Dougherty Mark Kogel Michael Wittner (1) (1) (1) breanne.dougherty@sgcib.com mark.kogel@sgcib.com michael.wittner@sgcib.com London Head of technical analysis Metals Cross Commodity Strategist Stephanie Aymes Robin Bhar David Schenck (44) (44) (44) stephanie.aymes@sgcib.com robin.bhar@sgcib.com david.schenck@sgcib.com Singapore Bangalore Cross Commodity Strategy Agriculture Mark Keenan Rajesh Singla (65) (91) mark.keenan@sgcib.com rajesh.singla@sgcib.com 22 August

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