Gold futures have fallen to their lowest level in five weeks, while palladium has climbed to its highest level in two-and-a-half years, as investors weigh diplomatic tensions between Russia and the West.
Gold for April delivery, the most active contract, on Monday fell $US24.80, or 1.9 per cent, to settle at $US1,311.20 a troy ounce on the Comex division of the New York Mercantile Exchange. This was the lowest settlement since February 13, when futures closed at $US1,300.10 an ounce.
Gold futures have pulled back over the past week after Crimea’s secession from Ukraine gave the market more certainty about the likely path of diplomatic tensions in Eastern Europe.
Some of that retreat could be seen in gold-backed exchange-traded fund holdings, said Ole Hansen, head of commodity strategy with Saxo Bank. Total gold inventories held by ETFs fell by 0.2 metric tons during the week ended March 21, to 1766.2 metric tons, the first decline in four weeks.
Gold prices have also faced pressure from worries that the US Federal Reserve could raise interest rates sooner than previously thought. Fed Chair Janet Yellen last week said the central bank could raise rates as soon as six months after ending its bond purchasing program. This time frame pegs the prospect of higher interest rates as early as April 2015, well ahead of market expectations for rates to move up in the second half of next year.
“It was a stark reminder that the Fed is still on its (stimulus) taper path and we’ll likely see higher interest rates in the near future,” said Dave Meger, director of metals trading with futures brokerage Vision Financial Markets in Chicago.
Gold and other precious metals tend to struggle during periods of high interest rates because they do not earn interest or dividends, unlike bonds and stocks.
Palladium rallied to a two-and-a-half year high amid a trifecta of possible Russian trade sanctions, a mine strike in South Africa and the planned launch of two palladium-backed ETFs. Palladium is mostly used to make car exhaust filters, called catalytic converters, for petrol burning vehicles, an automotive market dominated by China and the US.
Palladium for June delivery rose $US5.05, or 0.6 per cent, to settle at $US794.35 a troy ounce on the Nymex. This was the highest settlement price since August 3, 2011, when futures closed at $US795.10 an ounce.
“With supply fears from Russia and South Africa, and the launch of the (South Africa) palladium ETF, we prefer to approach the metal from the long side,” said Walter de Wet, head of commodity strategy with Standard Bank.
Russia supplies about 40 per cent of the world’s palladium production. Some investors worry that Russia’s decision to annex Ukraine’s Crimea region could result in trade sanctions from the US and Europe that could disrupt the palladium market.
A protracted mine strike affecting platinum and palladium production in South Africa, which supplied 37 per cent of global palladium needs, has also been a source of supply concerns for precious metals traders.
At the same time, plans to launch two different exchange-traded funds backed by the physical metal in South Africa in April could see demand for palladium climb by more than five per cent this year, analysts at Wells Fargo said in a recent note.
Settlements (ranges include open-outcry and electronic trading):
London PM Gold Fix: $US1,310.75; previous PM $US1,336.00
Apr gold $US1,311.20, down $US24.80; Range $US1,308.50-$US1,335.70
May silver $US20.067, down 24.3 cents; Range $US19.920-$US20.315
Apr platinum $US1,431.20, down $US4.80; Range $US1,428.50-$US1,444.40
Jun palladium $US794.35, up $US5.05; Range $US782.15-$US802.45