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Precious Metals Weekly

30 March 2016

Investor positioning too heavy?

Yellen’s cautious comments weigh on dollar and support gold prices

Last week and the start of this week, the US dollar profited from relatively hawkish

comments from Fed officials. This weighed on precious metal prices. However, the dollar

upside was capped across the board including versus precious metals. For example, gold

prices appear to be well protected in the USD 1,210-1,220 per ounce area, also this time.

On Tuesday, before the Fed’s Yellen’s speech, gold prices already recovered. This move

gained momentum after Yellen’s cautious remarks on monetary policy and the economy.

As a result, gold prices are back to around USD 1,240 per ounce.

Investor positioning too heavy?

Year-to-date, precious metal prices have rallied by more than 10% with the exception of

palladium which has had a delayed recovery. For example, gold prices have rallied close

to 17%. The rally, so far this year, has been fuelled by investors moving back in precious

metals as an investment. Investors move into an asset if it is relatively cheap and if there

is enough upside in prices. The substantial price declines over the recent years have

made precious metals cheap on an absolute level. The prospect of cautious Fed

tightening as well as negative rates/yields in the eurozone, Japan, Danmark, Sweden and

Switzerland have sharply increased the relative attractiveness of precious metals as an

asset. In addition, the uncertainty surrounding China’s exchange rate regime and financial

market turmoil have also made gold more attractive. It is a relatively cheap “safe-haven”

asset because of low US Treasury and German Bunds yields and the strong dollar rally

over the recent years.

Group Economics Macro & Financial Markets Research

Georgette Boele

Co-ordinator FX & Precious Metals

Strategy

Tel: +31 20 629 7789

georgette.boele@nl.abnamro.com

Yellen’s cautious comments weigh on USD and support gold prices

The strong price rally is the result of investor demand for gold

Speculative net-positioning has risen sharply…

…but is not excessive in our view

Total gold ETF positioning also has room to rise

Investors are waiting for a reason to push gold prices above 1,280

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