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REPORT ON THE GLOBAL PRECIOUS METALS MARKET FOR FEBRUARY 2018

5 March 2018, Prague – As for the movement of precious metals prices, February was a relatively calm month. The range between their minimum and maximum prices had not exceeded 10.0%
for three out of four metals observed. Gold with 4.2% was the least volatile metal, it was followed
by platinum with 6.3%, then silver with 7.1%, and the only metal, which reached the volatility over 10.0%, was palladium with 12.0%.

 

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  Gold Silver Platinum Palladium
Highest price USD/oz 1,362.32
17.330
1,016.38
1,070.79
Date 16-02-2018 01-02-2018 16-02-2018 26-02-2018
Lowest price USD/oz 1,306.75 16.175 955.55 955.50
Date 08-02-2018 09-02-2018 09-02-2018 09-02-2018
 
The precious metals had reached their minimum prices in the first decade of the month. It was interesting
to observe the development of platinum and palladium. The palladium continues in its decline expected by us. Towards the end of the month, it reached the border of 1,070 dollars per ounce momentarily; however, it was given mainly by two events having an impact on palladium in the long term.
  1. In February, a fight for taking control over the biggest palladium producer in the world, Russian Norils Nickel, began to take momentum. After five years of ceasefire, a war between Russian oligarchs – Vladimir Putin and Oleg Děripask – has started again, and this dispute brought uncertainty
    to the development of the market with palladium.
     
  2. On 28 February 2018, the Federal Administrative Court of Germany decided that big cities are entitled
    to prohibit the entrance of cars with diesel engines to centres. The decision of the Court of Germany means that we are witnesses of the end of an era in automotive industry – the end of cars with diesel engines. Experts agree that this segment of engines will perhaps survive in trucks but its mass use is approaching its end. It means the only thing for platinum miners – they are going to lose approximately
    40% of the whole demand
    for this metal. We expect that platinum will keep on its decline.
However, there is no doubt that the most important economic event in February was a fall in share value
on 5 February 2018
. Dow Jones Index, which consists of shares of 30 top American companies,
had fallen by more than 10% from its maximum of 26 January 2018. Subsequently, it recovered in February, though its record value above 26,500 points is being far away. At this moment, it fluctuates around the value
of 24,500 points. Put more simply, the main reason of this fall is a fear of more expensive money. The yields
on US bonds have been rising, and at the same time, there are rumours that FED would not stop with increasing interests rates at 3.0%.
 
These fears had also been supported by the US news on inflation in the middle of the month. Contrary
to forecasts, inflation had been growing faster while being increased by 0.5% on the month-on-month basis
in January. It again supports speculations that the American Central Bank is to start to put up the price of money faster than it has been expected so far. Broadly speaking, more expensive money means increasing interest rates. At this moment, the market takes the increase of rates by FED on 21 March 2018 as granted
The question is if they keep on increasing by 0.25% or if they decide to increase the rates abruptly
by 0.05%. The FED meeting on 21 March where they will announce their decision on increasing rates will certainly be the most observed economic event in March.
 
The experience gained in the past months shows that there may be a short-time decrease in the gold price. Therefore, we recommend not to buy gold at this moment to our clients, or to send exceptional deposits into their regular saving. Within the time horizon of three or more years, the saving seems to be the best way of investing in gold. It is given by the fact that regular investment with the use of these exceptional corrections provides the client with the possibility to buy gold under its long-term average price.
 
In the context of the Czech Republic, it should not be omitted that there was an increase in household debts
in January by more than 111 milliard crowns. The households owed 1 billion and 541 milliards of crowns in total. What will become with these debts and the whole economy as a result of more expensive money? The answer
is simple; the most of them will not be able to pay their debts.
 
In March, we are going to follow not only FED but also Italian and Russian elections. Especially Italian elections may result in the fact that in the case of the victory of nationalists and extremists, the already fragile economy may be shaken. At this moment, Italy is already extremely indebted, and its bank system is going through a
long-term crisis.

 

Libor Křapka
Chief Executive Officer of IBIS InGold®, a. s.