Metals may face headwinds for a while yet, but “patience is a virtue” for the longer term, said TD Securities in a commodity research note.
According to TDS, gold could be subdued early in the second quarter due to diminished hopes for further quantitative easing in the U.S., slowing income growth in China and higher taxes in India.
A less-robust outlook for China’s economy could mean deteriorating demand for industrial metals such as platinum, palladium, copper and other base metals. Gold could benefit from any indications of slowing economic growth in the U.S., TDS added.
Commodity analysts with TDS added that larger-than-normal seasonal adjustments to favorable U.S. economic data in January and February due to unusually warm weather may have the opposite effect around May, which could moderate increases in Treasury yields.
Meanwhile, China could once again allow its currency to appreciate if the export sector recovers. TDS continued that “efforts to keep yields down from recent highs, elevated inflation risk, and a global financial system flush with cash are likely to eventually bring specs back in, helping gold prices along with the relatively stable ETF, coin and bullion demand.”
Industrial metals, meanwhile, eventually could be lifted by easier monetary policy and government fiscal action in China, along with a Western world recovery.
“Supply constraints present in the palladium and copper markets will likely make these commodities join the group of the biggest winners this year,” TDS concluded.
Source: Commodity Online