Market Landscape for Q1



Market Landscape for Q1

Market Landscape for Q1

Kitco’s veteran trader, Peter Hug, provides an outlook for gold and silver’s performance in Q1.

Silver

As it relates to silver and the platinum group metals, the influence of global deflationary forces will continue to cap gains. This comment does not mean prices will necessarily drop in the first quarter of 2016, but in relation to gold’s price, it is not expected that an appreciable narrowing of the ratios will take place. For example, silver is currently trading at a 78:1 ratio to gold, and throughout 2015 the average ratio was around 65:1. At current market levels, if the ratio were to come back to the 2015 mean, silver should be trading almost $3 higher, with the current gold price. Historically, platinum has traded at a premium to gold, now down to a $230 discount. The deflationary forces of lower oil, slowing China growth and sub-par European growth should keep these metals, at least from a ratio perspective, on their heels.

Gold

Gold prices are a mixed bag as well. An argument can be made that with slower global growth the fed should be restrained from a further rate increases, at least through the first quarter of 2016. Easy monetary policy, geo-political risks in the Middle East and a weaker equity picture in China, Europe and the US, suggest that a core holding in gold is now even more relevant. Prices may however be affected by the collapse of values in other asset classes, which can result in the short-term liquidation of gold positions for the purposes of raising cash, as investors try to maintain their equity positions.

Picking a Side

If the global economies turn around, gold prices will move lower, as central banks will be able to normalize interest rate policies. The likelihood of this occurring in the first quarter, I would put at about a 10% chance. More likely, a continued erosion of equity values, with potential financial defaults and the central banks adding to the easy money policy, not pulling back, resulting in higher gold prices.

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Kitco supplies investors with precious metals for delivery to Strategic Wealth Preservation’s storage facility in the Cayman Islands. If you’re interested in purchasing metals from Kitco for delivery to the Cayman Islands, please contact Josh Perez (jperez@kitco.com) for more information.



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