Tuesday, September 3rd 11:32 AM IST

Gold and Silver may perform better if US August employment data disappoints

# gold  # silver  # precious metals  # platinum  # palladium  # US jobs data  

Gold and silver continue to benefit from safe havel appeal-it may out perform better if August employment data also disappoints as in July. In the absence of investment demand, the decline in prices in the first half of the 2013 revealed strong physical demand, notably strategic buying from Asia.

Image Courtesy of BigStockPhoto.com

LONDON (Bullion Street): Escalating tensions in Middle East benefitted silver and gold while platinum and palladium weakened on disappointing US employment data of July,Syria tensions, falling equities that cast a shadow on global economic recovery, according to ETF Securities Ltd (ETFS).

Silver added 2.5% for an August gain of 18.6%, the best monthly performance since January 2012. Platinum and palladium came under pressure in response to declining equity prices, as tensions in Syria threatened to destabilize the global economic recovery. In addition to Middle East tensions and an upcoming US Congressional budget ceiling debate, the marketplace will greet the official end of summer with August US unemployment on Friday, September 6. 

Gold and silver continue to benefit from safe havel appeal-it may out perform better if August employment data also disappoints as in July. In the absence of investment demand, the decline in prices in the first half of the 2013 revealed strong physical demand, notably strategic buying from Asia. The fundamental backdrop for gold remains robust with tighter supply, notably from reduced recycling levels in Q2 and diminishing mining productivity. With a strong fundamental environment and on-going  structural economic risks, particularly elevated global debt burdens, the mediumterm outlook remains constructive for the gold price. 
Looming US debt ceiling debate adds to seasonal support for gold. 

September has historically been the best month for gold investors as the gold price has gained around 3% on average (since 1990). Additionally, US Treasury secretary, Jack Lew, warned last week that the current debt ceiling of USD $16.7T will be reached in mid-October. Since the end of 1999, there have been 11 officialvotes in the US congress to raise the debt ceiling (see chart below). The last vote was August 2, 2011. Four days later, S&P downgraded the US debt. The longerterm portfolio diversification benefits of precious metals are often accentuated in times of economic malaise and uncertainty, most recently demonstrated in Indiaas gold surged on the back of the Indian Rupee slumping to new historic lows last week. 

Improving outlook for the PGMs, among the few commodities in deficit
The fundamental backdrop for platinum and palladium continued to improve last week despite prices coming under pressure. Platinum and palladium are among the few commodities with supply/demand deficits, expected to remain in place through 2014. Continued labor strife in South Africa, improving economic data, particularly in Europe, increasing emissions regulations, and declining production are all supportive factors for PGM prices.

The world’s largest platinum producer, Amplats, announced that it may close or divest platinum mines in South Africa if profits do not improve. Chinese jewellery demand is the single largest category of platinum demand. Chinese platinum import data indicated a jump of 20% yoy in June. Additionally, auto-catalyst production outlook, the second largest source of demand, is improving on early signs of a recovery in the Eurozone economy.

Key events to watch this week
The officially end to the summer and myriad economic data should provide plenty of excitement. August US Unemployment on Friday will likely be the climax and may set the tone for the month, in a similar way to US labor market data did in July. 

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