Precious metals continue to consolidate – gold price little changed

FastMarkets March 19th, 2014

Precious metals prices continued to consolidate on Tuesday with the complex pulling back by an average of 1.6 percent at the day’s lows, with the silver price down 2.6% at $20.62, while gold dropped to a low of $1,350.65. By the close they were down an average of 0.9 percent with the gold price finishing at $1,355.65 and silver at $20.82. The PGMs closed down around 0.6 percent.

Precious metals are little changed, with the gold price off 0.1 percent at $1,354.95, silver at $20.83, the platinum price is up 0.3 percent at $1,460 and palladium off 0.1 percent at $764.40.

Gold and silver are weaker by 0.6 and 1.1 percent at Rmb 268.10/g and Rmb 4,192/kg. Given concerns over bad debt and bond defaults, it is surprising that precious metals are not firmer.

Equities – despite Russia’s move to annex Crimea, equity markets reacted positively to the news that Russia would not attempt to split Ukraine up further. As a result, the Euro Stoxx 50 closed up 0.8 percent, the Dow closed up 0.6 percent, but Asia has been mixed with the Nikkei up 1.7 percent, the Hang Seng is off 0.2 percent, the Kospi is up 0.1 percent, but another bond default, this time by Zhejiang Xingrun Real Estate, a small unlisted local property developer, is worrying China’s markets, which has pushed the CSI 300 down 1.5 percent. With bond yields rising and the market more worried about bonds, it looks as though corporate China is going to be even more dependent on the banks for cash flow.

Currencies – The emergence of stress and some default in China’s bond market and the sudden change in trend in the renminbi seems too much of a coincidence for the currency weakness to be just the PBoC flexing its muscle to shake out some shorts. Today the renminbi dropped to 6.2000. The dollar index continues to hold down in low ground, last at 79.44, the euro remains strong at 1.3919, cable is drifting, last at 1.6590, the aussie is trying higher, last at 0.9115 and the yen is holding near highs at 101.50.

The economic agenda will be focused today on the FOMC rate decision, statement, economic projections and a press conference. Data already out showed Japan’s all industries activity index climb one percent, it was expected to rise 1.3 percent. Later we get a host of UK employment data, details of the UK budget and US data includes the current account and crude oil inventories – see table below for more details.

The precious metals, led by gold, continue to consolidate, so far gold prices have dipped to $1,350.65, which took prices back to a steep up trend line (UTL), which today is at $1,352. The less steep UTL is at $1,323. Given the gains this year, the market may well need to spend some time consolidating so we would not necessarily be in a hurry chase prices higher yet. That said, if prices do not need to consolidate for long, then that will reconfirm how robust the rally is.