Precious metals have been on a bouncy ride this year. The looming fear of rising interest rates is one of the most important factors that will determine the prices. All of the precious metals have YTD (year-to-date) losses as of November 3, 2015. Platinum performed the worst. It fell about 20.8% on a YTD basis. Similarly, gold, silver, and palladium fell 5.8%, 3.1%, and 19.1%, respectively, on a YTD basis.
Palladium has been the worst-performing precious metal on a 30-day trailing basis. It lost almost 7.3% of its price. It closed at $644 per ounce on Tuesday, November 3. This is the lowest level in about one and a half months.
Platinum and Palladium Prices, 2015 2015-11-04
The continued weakness in platinum’s price is likely due to the continued concerns about the Volkswagen emissions scandal. Palladium is part of the autocatalyst technology in the production of gasoline engines—not diesel engines like platinum. Excessive production and other fundamental weaknesses have pushed its price lower. The ETFs that are backed with platinum and palladium metals have also seen a fall in their prices. Other ETFs that have shown weakness in the past week include the Market Vectors Gold Miners ETF (GDX) and the Global X Silver Miners ETF (SIL). They fell 6.9% and 6.6%, respectively, on a five-day trailing basis.
Declining car sales in the emerging markets hit palladium hard. It’s widely used in the autocatalyst technology. The rising stockpiles for both platinum and palladium, especially among the South African miners, is another primary concern. The mining equities that have seen a fall in their prices in the past week include Sibanye Gold (SBGL), Gold Fields (GFI), and AngloGold Ashanti (AU). These three companies contribute 10.6% to the price changes in the Market Vectors Gold Miners ETF (GDX).
Previously, we discussed how India is promoting the gold monetization scheme. Read Why Is India Promoting Gold Monetization? to learn more. The news from the mainland tells us that the project’s investors can earn up to 2.5% interest on the gold. So, is gold an interest-bearing asset in India?
According to the Reserve Bank of India’s notification issued on Tuesday, November 3, the interest rate on medium and long-term government deposits of gold are 2.3% and 2.2%, respectively. The tenor of a medium-term deposit would be 5–7 years while a long-term deposit would for 12–15 years.
Banks giving good options to gold lovers could curb the country’s gold imports. India has taken the title of the “biggest gold consumer” from China. A curb on the imports from India led to a significant fall in gold’s price.
The Reserve Bank of India added that it would maintain the gold deposit accounts denominated in gold in the name of the designated banks. In turn, the banks will hold sub-accounts of individual depositors. Since the government has planned to initiate the scheme, it aims to tap 20,000 tonnes of idle gold worth about 540,000 crore—about $8,100—into the banking system.
Will the downward trend in gold continue?
Since we saw negative sentiments on gold running across the markets, the initiation of such a monetization scheme by the biggest gold consumer could probably lead to an additional fall in the bullions. Gold is down almost 5.8% for the year. Silver fell 3.1%. The ETFs that track the bullion’s performance like the iShares Silver Trust ETF (SLV) and the SPDR Gold Shares ETF (GLD) also fell 3.2% and 5.8%, respectively, on a YTD (year-to-date) basis. Most mining companies like Eldorado Gold (EGO), Kinross Gold (KGC), and Hecla Mining (HL) also saw negative returns on a YTD basis. These three companies account for 8.5% of the Market Vectors Gold Miners ETF (GDX).
Silver lost its shine
The returns on silver remain the best on a YTD (year-to-date) basis compared all of the other precious metals. However, silver became the worst-performing asset on a five-day trailing basis as of November 3. Silver has lost a whopping 6.4% in the last five trading days. That’s the biggest loss since July. The speculators boosted their net-long positions in silver futures and options to the highest since 2006 just before the US Fed signaled a rate hike in December. Silver futures for December delivery on COMEX, a division of NYMEX, closed at $15.30 per ounce on Tuesday, November 3, 2015. It’s the lowest level for silver in about one month.
Front Month Silver Futures 3-Month Price Evolution 2015-11-04
Threat of a rate hike
The threat of higher rates after the October FOMC (Federal Open Market Committee) meeting sent ripples through precious metals market. As monetary policy tightening takes place, precious metals tend to lose their allure. They don’t bear any cash flows or interest like Treasuries.
Gold’s trading near its one-month low. Platinum fell for four straight days. While hedge funds investors were fortunate enough to pull back their bullish bets before the Fed’s hawkish stance, the silver bulls weren’t as lucky. Hedge funds likely picked the wrong time to build their bullish bets in silver. More than $380 million has been lost over the past week from the value of global exchange-traded products backed by silver.
Silver-backed ETFs like the Global X Silver Miners ETF (SIL) and the iShares Silver Trust ETF (SLV) fell 6.6% and 3.7%, respectively, on a five-day trailing basis. Silver mining companies that saw a fall in their prices in the past five trading days include Silver Wheaton (SLW), First-Majestic Silver (AG), and Pan American Silver (PAAS). Together, these companies account for 7.1% of the price changes in the Market Vectors Gold Miners ETF (GDX).