Precious metals gain as investors gauging this asset avenue as safe haven – ETFs diverging again

Over the past month, precious metals prices diverged. While palladium and platinum fell by 10% and 2% m/m respectively, gold and, to some extent, silver benefited from safe-haven demand on the back of the turmoil in global equity markets and escalating tensions in the Middle East.

From a technical point of view, the outlook for PMs has somewhat improved. While all metals are trading well below their 200-day moving averages, gold and silver have broken above their 50-day moving averages, a bullish signal for prices. Meanwhile, the gold/platinum ratio rose from about 1.25 to 1.30, moving further away from its long-term average of around 0.8, as platinum underperformed gold.

Sentiment in the futures markets diverged quite sharply last month. Gold and silver saw an increase in their net long positioning as they benefited from safe-haven demand. In contrast, sentiment towards palladium soured, with net longs falling by 47% m/m. Gold underwent the biggest change in sentiment in the futures market, where net non-commercial long positioning increased by 138%, as short bets were cut by 19%.

Most precious metals ETFs saw outflows last month but it has reversed the scenario again in this month. Gold ETFs bucked the trend, with assets under management increasing by about 1%, on safe-haven demand. Palladium and silver ETFs were the worst performers, recording five consecutive weeks of outflows.

Holdings have meanwhile been increased by 42 tons since the beginning of the year. As already happened in the last few days, silver was also pulled upwards by gold yesterday, though this time it gained more strongly than gold. This morning sees silver priced at a good $14.3 per troy ounce.

That said, silver remains cheap in comparison to gold, as the gold/silver ratio reveals - at 78 it is not far off its multi-year high from August 2015. China clearly took advantage of the low price level to import considerably more silver, especially in the second half of the year.

As data published by the customs authorities this morning show, silver imports in 2015 as a whole surged by 25% year-on-year to 3,344 tons. This also constituted the highest import volume in four years. Since we believe that 2016 will be the fourth consecutive year to show a supply deficit on the global silver market, the silver price should gain noticeably during the course of the year.