The unexpected weakness of the US dollar continues to provide support to precious metals. Prices gained 1.2% and 2.3% to USD 1,217 and USD 17.2 per ounce yesterday as president-elect Donald Trump said the dollar was overvalued. According to Carsten Menke, Commodities Research Analyst at Julius Baer:
Considering the improving growth outlook in the United States and the expectation of further interest-rate hikes by the Federal Reserve, we believe dollar strength should return, causing renewed headwinds for gold and silver.
This backdrop does not bode well for investment demand, and outflows from physically backed products should resume. Analyst Menke says:
We continue to see more downside than upside for prices and maintain a cautious view for both gold and silver.
Meanwhile, palladium prices remain elevated, adding 0.6% to USD 750 per ounce yesterday. They do not appear to reflect a looming dent in global car sales, triggered by a cutback to subsidies in China. Sales grew more than 13% last year as consumers pulled forward purchases but growth might turn negative over the coming months. Also taking into consideration prevailing bullish sentiment in the futures market, palladium is vulnerable for a short-term correction. We remain cautious and recommend staying on the sidelines for the time being. As a conclusion Julius Baer’s experts explains:
The weakening US dollar has been providing support to gold and silver as of late but headwinds should return against the backdrop of improving growth and rising interest rates. Palladium remains vulnerable for a short-term correction as current price levels do not appear to reflect a looming dent in global car sales.