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REPORT ON THE GLOBAL PRECIOUS METALS MARKET FOR MARCH 2017

March was not a dramatic month in terms of a purely mathematical point of view on fluctuation in prices of precious metals either. The biggest difference of spot prices was observed in platinum, i.e. 10.7%, in palladium 10.5%, in silver 10.0% and in gold 5.5%.

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  Gold Silver Platinum Palladium
Highest price USD/oz 1,261.30 18.5025 1,029.70 817.00
Date 27 Mar 2017 1 Mar 2017 1 Mar 2017 24 Mar 2017
Lowest price USD/oz 1,194.85 16.8150 930.00 739.00
Date 10 Mar 2017 15 Mar 2017 9 Mar 2017 14 Mar 2017

 

However, March was the most interesting month of this year in macroeconomic terms. This is evidenced by the dispersion of the highest and lowest prices. Only two metals reached the maximum on the same day of this month, namely platinum and silver – on the first of March. Otherwise, the dispersion of prices was rather high.

The main cause of this difference was mainly the FED meeting in the middle of the month. Before this meeting, prices of all precious metals were rather declining. The entire market expected an increase in rates. It happened and the band of interest rates was increased by central bankers to the level 0.75 – 1.00%. It was no surprise and there seemed to be no reason why gold and subsequently other precious metals should continue in their correction because higher interest rates are not good news for them. But the opposite was true. After announcing an increase in interests, the price of gold went up immediately by 13 dollars per one ounce and in the second half of the month, the most of metals caught up on the decrease from the beginning of March.
 
What is the reason for this apparent paradox? These are mainly accompanying comments of US central bankers, which were issued after increasing the interest rates. These show that inflation may be faster than they expected and therefore, interests on dollar are not sufficient for covering losses from this inflation. And currency depreciation passes to the actual value, i.e. to gold. Therefore, investors direct their investments at precious metals rather than at dollars – mainly at gold which has always been a safe haven while being a safety measure against inflation. The dollar further weakened when Donald Trump had not managed to push through the health care reform. US shares immediately followed the weakening dollar because investors begin to worry that the new US president will not manage to pursue his policy. The shares weakened by 3% in one day and fell by 8.2% from the beginning of March. The weakening of the dollar as well as shares was another impulse for strengthening gold, i.e. almost 70 dollars per the troy ounce from the middle of the month were added.
 
Thus, gold has been increasing in the US dollars by more than 8%, silver by 13% and palladium by more than 17% since the beginning of the year. However, the growth has not been observed only in precious metals. London Metal Exchange Index (LMEX), which follows non-ferrous metals (aluminium, copper, lead, tin, zinc and nickel), has increased by 9.2% since the beginning of the year, and it seems that metals are to repeat the last year when they were the best investment of the year.
 
March was interesting also from the point of investor’s view on so called new investments, namely crypto currency. The best-known of them is Bitcoin. Its price has been growing recently mainly thanks to the demand from China, where it served as means for transferring the capital out of the country. The Chinese government immediately imposed restrictions on Bitcoin while sending its price down. At this moment, another problem is that an authentication procedure of Bitcoin takes very long and the chain of characteristics which serves to its identification occupies a large space. Therefore, we begin to talk about so called hardfork, i.e. factual division in two independent currencies. Some inexperienced investors saw great potential in Bitcoin and invested in it significant amounts. However, it was a bet on a new, unexplored technology which can bring great disappointment now.
 
The fact that the Great Britain launched its exit from the EU at the end of the month was also an important event for European investors. The Prime Minister activated Article 50 of the Treaty of Lisbon while confirming the citizens’ will of the United Kingdom to leave the European Union. Nobody is able to imagine what it will mean for Britain as well as for the EU at this moment. There’s only one certainty – uncertainty.
 
Leaving interventions against the Czech crown appreciation will be an equally important decision for domestic investors. The Czech National Bank also intervened heavily in March. Its purchases are expected to amount to record-breaking EUR 16 billion. Such volumes are not sustainable in the long term and the end of interventions can be expected very soon. Now, everybody bets on the crown appreciation amounting to
25 crowns per euro. But the question is what it will do with the exchange rate when investors start to collect profits from appreciation. It is almost clear that the crown’s exchange rate against the euro will be very unstable, and it will increase uncertainty in an already uncertain world of finance and investment.

 

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