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UBS ‘Positive’ On Gold As Real Interest Rates Remain Low

UBS remains upbeat on gold even if the Federal Reserve hikes interest rates yet this year, commenting that the key is “real” rates rather than nominal rates. Real rates refer to the percentage return a saver or investor receives after allowing for inflation. Historically, gold’s performance has been mixed when the Fed has been in a tightening cycle, UBS points out. “In our view, what ultimately matters for gold are real rather than nominal yields,” UBS says. “Inflation, inflation expectations and the market's perception on whether the Fed is behind or ahead of the curve therefore need to be taken into account. While we expect the Fed to hike rates in December, we continue to think U.S. long-end real yields have room to fall further, supporting our positive gold view.” Additionally, other gold market-specific factors need to be considered, UBS says. For instance, the introduction and popularity of gold exchange-traded funds and “strong inflows” back in 2004-2007, combined with producer dehedging, “were important factors that helped gold rally even as the Fed hiked interest rates” back then, UBS adds.

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

 

UBS: Gold Supply/Demand Fundamentals OK

Friday September 30, 2016 08:03

UBS says gold supply/demand fundamentals are OK as the market has drawn much of its strength so far this year from macroeconomic factors instead. Exchange-traded-fund inflows have been comparable to the gains of nine to 12 years ago. “While the pace of the official-sector net purchases has slowed down this year, it is still a sea change compared to the net selling that occurred in 2004-2007,” UBS says. “Both aspects of the market are therefore supportive for gold.” Producers have reverted from buy-backs to net hedging, although the latter tends to be largely connected to developing new projects, UBS says. “Sizeable hedging reminiscent of the old days, particularly from the majors, remains absent,” UBS says. “We don't expect this to change given the overall lack of appetite, especially from shareholders, and the current lack of depth and liquidity in the gold rates market, which limits the ability to put through the same structures as before.” Further, expectations that gold-mine output is hitting a plateau and will eventually decline, due to a lack of capital expenditures, means a healthier supply-demand picture, UBS says. One weak link has been physical demand in key consuming nations. “However, even though volumes may not be significant, physical buying should still be able to provide support to the market as long as core appetite linked to culture and traditions remains intact.”

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

 

Commerzbank: Platinum Discount To Gold Most Since Mid-Year

Friday September 30, 2016 08:03

Platinum is at a discount of nearly $300 an ounce to gold, the most since mid-year, points out Commerzbank, expressing some surprise in inability of platinum to rally more. “In view of the robust automotive sector and the possible risk of strikes in South Africa within the context of the collective wage negotiations in the platinum industry there, we find it somewhat difficult to understand the price weakness,” analysts say. “Presumably the selling pressure is coming not only from ETF (exchange-traded-fund) outflows – holdings were reduced by 84,000 ounces this quarter – but also from the futures market. Speculative financial investors have already been retreating from platinum for the past six weeks.” Around 7:45 a.m. EDT, spot gold was around $1,324.90 an ounce, while platinum was at $1,034.20.

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

 

HSBC: Metals Investors Could Shift To Silver, Platinum, Palladium

Friday September 30, 2016 08:03

HSBC sees potential for investors to shift toward the smaller precious-metals markets of platinum, palladium and silver if investors should start to lose enthusiasm for gold after the rally so far in 2016. The bank says these metals “look more energetic and may outperform gold.” Palladium, in particular, has been especially strong lately. The Nymex December contract Thursday hit its highest level since Aug. 11 at $723.50 an ounce. “If the market ‘tires’ of gold, we could see some rotational move into these smaller, but fundamentally positive markets,” HSBC concludes.

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

 

 

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