Citi: Risk Aversion To Support Gold Prices In 2Q Before Tapering In 2H

Citi Research looks for gold to remain underpinned in the current quarter but cautions that strength could abate later in the year. “We believe current price momentum may begin to ease after this quarter, averaging $1,200/oz for the year as a whole,” the bank says. Citi lists a 60% probability of its base-case scenario, which would be gold holding current levels and maintaining a bid “as lingering risk aversion supports ongoing gold inflows in the second quarter, perhaps countered by better risk appetite in other asset classes, particularly oil and equities in 2H16.” Under its base scenario, Cit sees gold averaging $1,250 this quarter, $1,210 in the third quarter and $1,150 in the fourth quarter. The bank lists a 30% probability of a bull-case scenario, which would be exacerbation of U.S. and global growth concerns and a softer dollar, along with a possible oil-supply disruption, that could send prices above $1,400. Analysts see only a 10% likelihood of a bear-case scenario with an “outsized rebound in equities, a stronger U.S. dollar/more hawkish Fed and significantly higher oil prices into 2017.”

By Allen Sykora of Kitco News; asykora@kitco.com

Citi: Rand Moves Against U.S. Dollar To Be Key For Platinum Prices

Monday April 18, 2016 11:27

Movement in the South African rand could dictate dollar-denominated moves in platinum, says Citi Research. Weakness in the rand could resume if the country’s rating is downgraded, the bank says.
South Africa provides the bulk of the world’s primary platinum supply, and Citi estimates that some 80% of the industry is cash positive at current weak rand levels. A weak rand helps producers since it means they get more revenue in their local currency for the platinum they produce, thereby encouraging them to maintain output rather than cutting back.  “We expect dollar metal prices to be sustained at current levels in the near term, increasing longer term in line with cost-curve inflation,” Citi says. “The caveat to this view is of course the ZAR/USD (rand/dollar) exchange rate….Should the ZAR depreciate versus the USD, then there are downside risks to dollar-PGM prices in order to yield a real basket price of e.g. R13,000/ounce. Conversely, should the ZAR appreciate vs. USD, then there is upside risk to dollar-PGM prices in order to achieve ZAR cost curve economics.”

By Allen Sykora of Kitco News; asykora@kitco.com

BNP Paribas: Dips In Euro To Be Buying Opportunity

Monday April 18, 2016 11:27

BNP Paribas says dips in the euro against the U.S. dollar may be a buying opportunity. With no deal among oil producers after a weekend meeting in Doha, risky assets are likely to remain under pressure, supporting current account-surplus currencies, the bank says. “We are bullish on EURUSD from current levels and have established a long trade recommendation at $1.1290, targeting a rise to $1.1600, with a stop-loss placed at $1.1140,” BNP Paribas says. As of 11:09 a.m. EDT, the single European currency was trading at $1.13215. Metals traders tend to monitor moves in the U.S. dollar closely as both precious and base metals tend to move inversely to the greenback.

By Allen Sykora of Kitco News; asykora@kitco.com