18 Jan 2016

It’s nothing out of the ordinary to see precious metal miner Fresnillo (FRES) and Randgold Resources (RRS) nursing losses this morning, footing the UK index as markets kick off the third week of 2016 on a far more bullish note that the first two, and thus shun the safehavens of Gold and Silver. Both metals remain under considerable pressure, although the former had shown reversal potential over the past two weeks as equities made their most troubled stat to the year. The latter remains around its lows of December. Both remain well down from their highs, hindered by;

1) A USD near highs, weighing on USD-denominated commodities, due to possible further Fed rate rises in 2016 and a) a still weak EUR from Eurozone woes and potential for more ECB QE to kick-start growth and inflation, b) a GBP nowhere nearer a rate rise

2) While slowing China growth remains a worry, hopes of stimulus and intervention are strong

3) There is a distinct lack of inflation (blame low commodity prices) needing any hedging

4) The negative yielding asset has an opportunity cost associated with holding it

5) General mining supply gluts

In short, investors just aren’t worried enough to want to hold the traditional safehavens which is required if we are to see the prices shoot higher. Confidence remains strong in central banks rising to the rescue. Could this mean the Fed has to backtrack on December’s rate rise and move back to zero with its tail between its legs? While it may have made the right decision in December regarding the US economy, the global reaction (China, Commodities, Oil) suggests it was too early. Is the supply glut over for the finite Gold?

Mike van Dulken, Head of Research