Precious Metals - Q1 2017 Review And The Outlook For Q2
London (April 3) Precious metals were the best-performing commodities sector in the first quarter of 2017. A composite of the active month futures prices of the four exchange-traded precious metals moved higher by an average of 11.45% in Q1. This composite dropped by 8.10% in 2014. The sector fell by 19.46% in 2015, but in 2016, precious metals gained 11.71 %. The US dollar moved lower by 2% during the first three months of the year after a rally of 3.59% in 2016. A continuation of low interest rates around the world along with economic and political uncertainty had been supportive of precious metals prices in 2016. The Fed hiked rates for the third time since the tightening cycle started in December 2015. Precious metals moved lower as the Fed prepared to act and then rallied immediately following the 25 basis point increase on March 15. Each time the Fed has hiked rates since December 2015 the precious commodities moved lower on the rumor and higher on the fact.
Global interest rates continue to be at very low levels- in Europe, and Japan rates are negative and in China, they continue to fall and the currency, the yuan has been the subject of a devaluation program by the government. After three interest rate hikes in the U.S. the Fed Funds rate stands at only 1%. Concerns about inflation have supported the prices of gold, silver, platinum, and palladium. Gold was the leader early in 2017 but silver caught up with the yellow metal towards the end of the quarter.
Gold Review
Gold fell 10.46% in 2015 but it rallied by 8.66% in 2016. In Q1 the yellow metal posted an 8.64% gain. Gold settled on March 31, 2017, at $1251.50 per ounce basis the active month COMEX June futures contract. Gold traded in a range between $1146.50 and $1264.90 over the course of the first quarter of 2017. The lows for the year came on the first trading day in 2016 and the same thing happened in 2017. The yellow metal has traded in lock-step with the U.S. dollar so far this year. The GDX rose by 9.03% over the first three months of this year while the GDXJ was up by 14% over the period. In 2016, the GDX and GDXJ appreciated by 52.48% and 64.24% respectively. Open interest in COMEX gold futures contracts declined by 8,461 contracts to 414,893 contracts during the three-month period from the end of 2016 to the end of Q1. The decline came at the very end of March as gold rose close to technical resistance.
Source: SeekingAlpha
