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Gold posts biggest premium ever over platinum - Commerzbank

Kitco News

(Kitco News) - Gold prices have posted their biggest premium over platinum ever as the yellow metal benefits from lower interest rates amid the coronavirus outbreak, said Commerzbank Friday while hiking its gold forecast.

The central banks of the U.S., Australia and Canada all cut interest rates this week in an attempt to head off economic damage caused by the outbreak of the virus around the world. That boosted gold since it lowers the so-called “opportunity cost,” or lost interest income by holding a non-yielding asset such as a precious metal instead.

“Further interest-rate cuts by the Fed and other central banks are likely to follow,” said the Commerzbank report, written by Carsten Fritsch. “We are therefore revising our gold price forecast upwards and now expect $1,650 per troy ounce at the end of the year (previously $1,550).”

The year-end forecast is nevertheless lower than current prices, with Commerzbank commenting that the impact of the coronavirus “will decrease significantly in the second quarter and that the markets will calm down accordingly.”

Meanwhile, other precious metals like silver and platinum have not kept pace with gold, so Commerzbank did not alter its forecasts for these. In fact, the price of platinum slumped to $850 at the end of February, its lowest level since August 2019.

Further, platinum’s price discount to gold has hit a record-high of around $790 an ounce, Commerzbank pointed out. As of 9:10 a.m. EST, spot gold was trading at $1,679.10 an ounce after pulling back from the session high of $1,689, while platinum was at $895.65.

“The price weakness of silver and platinum is due to the abundant supply situation,” Commerzbank said. “Both silver and platinum have shown supply surpluses for years.”

“Another factor weighing on silver and platinum is the great importance of industrial and jewelry demand. The spread of coronavirus has further increased demand concerns. It is not expected that investment demand will step into the breach as it did last year.”

Commerzbank reiterated its forecasts for silver to trade at $18.50 per ounce at year-end and platinum at $950 per ounce.

Meanwhile, early Friday, gold was still benefiting from safe-haven demand, with bond yields tumbling and global equities remaining on the defensive.

“The reason for the price jump from mid-February was the rapid spread of coronavirus to more and more countries outside China, particularly South Korea and Italy,” Commerzbank said. “As a result, equity markets around the world came under strong selling pressure. The volatility index of the S&P 500 recorded the strongest increase in two years.”

As bond yields fell, the global volume of bonds with a negative nominal yield increased significantly, the bank said. “At $14.6 trillion, it recently reached the highest level since October 2019.”

Holdings of gold by exchange-traded funds have already risen by more than 100 metric tons since the beginning of the year and are now at a record level of nearly 2,650 tons, the bank said.

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