Precious Metals: First Quarter 2016 Review And The Outlook For Q2

Summary

  • The best performing sector of Q1.
  • Gold leads the charge.
  • PGMs continue to be the worst performers.
  • Break out in gold – more to come?
  • Uncertainty and fear drive the sector.

Precious metal prices moved higher during the first quarter of 2016. A composite of the active month futures prices of the four exchange traded precious metals appreciated by an average of 9.54% in Q1 making it the best performing commodity sector of all. The sector fell by 19.46% in 2015. This composite was also down by 8.10% in 2014. The US dollar weakened by 4.22% during the first three months of the year as the U.S. interest rates remained unchanged.

Economic uncertainty around the globe created an atmosphere of fear which resulted in a flight to quality bolstering the sector. Historically, there is an inverse relationship between precious metal prices and the dollar, prices of most precious metals outperformed the dollar. Interest in precious metals increased as volatility in world equity markets and other asset prices resulted in investors and traders seeking safe haven assets.

Global interest rates continue to be at very low levels - in Europe and Japan rates are negative and in China they continue to fall. The U.S. raised the Fed Funds rate for the first time in December 2015 and promised 3-4 additional hikes in 2016 but during the first three months of the year, the central bank did not act.

Some statements during the quarter led market participants to believe that further rate increases have been delayed until global economic conditions improve as the U.S. Fed fears contagion from other weaker markets. Precious metals became more precious during Q1. Precious metals and base metals both moved higher on average and metals registered the highest percentage gains of all commodities.

Gold Review

Gold closed on December 31 at $1060.20 per ounce. It never traded to that level in Q1 2016 as the price of the yellow metal moved higher on the first trading day of the year

This article was written by

Andrew Hecht profile picture
28.23K Followers
Weekly commodities commentary and calls, from a Wall Street veteran
Andy Hecht is a sought-after commodity and futures trader, an options expert and analyst. He is the #2 ranked author on Seeking Alpha in both the commodities and precious metals categories. He is also the author of the weekly Hecht Commodity Report on Marketplace - the most comprehensive, deep-dive commodities report available on Seeking Alpha.

Andy spent nearly 35 years on Wall Street, including two decades on the trading desk of Phillip Brothers, which became Salomon Brothers and ultimately part of Citigroup.

Over the past two decades, he has researched, structured and executed some of the largest trades ever made, involving massive quantities of precious metals and bulk commodities.

Andy understands the market in a way many traders can’t imagine. He’s booked vessels, armored cars, and trains to transport and store a broad range of commodities. And he’s worked directly with The United Nations and the legendary trading group Phibro.

Today, Andy remains in close contact with sources around the world and his network of traders.

“I have a vast Rolodex of information in my head… so many bull and bear markets. When something happens, I don’t have to think. I just react. History does tend to repeat itself over and over.”

His friends and mentors include highly regarded energy and precious metals traders, supply line specialists and international shipping companies that give him vast insight into the market.

Andy’s writing and analysis are on many market-based websites including CQG. Andy lectures at colleges and Universities. He also contributes to Traders Magazine. He consults for companies involved in producing and consuming commodities. Andy’s first book How to Make Money with Commodities, published by McGraw-Hill was released in 2013 and has received excellent reviews. Andy held a Series 3 and Series 30 license from the National Futures Association and a collaborator and strategist with hedge funds. Andy is the commodity expert for the website about.com and blogs on his own site dynamiccommodities.com. He is a frequent contributor on Stock News- https://stocknews.com/authors/?author=andrew-hecht

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The author always has positions in precious metals. Those positions, investments and trades vary with market conditions.

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