By Walter de Wet
Short-term price momentum for precious metals remains lower. Tactically we look for more downside, although strategically on a 3 — 6 month horizon we remain long precious metals.
The data from the BIS which suggest some European central banks are raising cash via gold swaps, combined with a rising Euribor and Italy who have to roll substantial amount of debt between August and November is cause for concern. The amount of debt Italy needs to roll in H2:10 dwarfs anything seen from Spain and Greece, even after accounting for relative GDP sizes.
Partly due to the above Standard Bank still sees the dollar stronger against the euro despite the recent rally in the euro. Our FX forecast is $1.15 against the dollar towards end of Q3 and close to parity towards the end of the year.
However, it is the speed of any depreciation in the euro that concerns us rather than the actual level of the euro. If the depreciation of the euro is over a number of months, we believe any negative impact on precious metal prices would be small. However, should the euro depreciate in a fast and disorderly fashion we believe even gold will experience short-term liquidation.
For a market view on where the euro could move we look at the options market. The options market puts the probability of the euro at $1.15 against the dollar within 3 months at 19%. The probability assigned to reaching parity within 3 months is seen at less than 1%.
Technically for gold yesterday's break below $1,197 is expected to yield further weakness into the $1,180 to $1,175 area. Resistance is at $1,196 to $1,200 area.
Risk of liquidation in platinum and palladium remain too. For platinum we see value below $1,500 but risk of liquidation remains. Therefore tactically we look for more downside with support at $1,485 and $1,452.50. Resistance is between $1,516 and $1,521. Palladium continues to find support at above $430 but weakness may extend towards $420—$415.
