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In the near term, further declines in gold prices can't be ruled out but the fact that gold is trading 20% below its average marginal cost of production, silver 10%, and platinum 25% below marginal production costs, p..

02 Jul 2013

LONDON (Commodity Online): Recent fall in gold and silver prices were the result of an over-reaction from bond markets to Fed comments and ultimately real interst rates will fall back from current levels, making the situation positive for precious metals in general, according to ETF Securities Ltd.

In the near term, further declines in gold prices can't be ruled out but the fact that gold is trading 20% below its average marginal cost of production, silver 10%, and platinum 25% below marginal production costs, prices will have to move above these levels to support long term supply growth, according to ETF Securities Ltd.

"With gold speculative shorts at all-time highs and market sentiment almost unanimously negative, we believe there is scope for a price reversal in the coming weeks and months. Silver should benefit from a gold price rebound. Platinum and palladium have been affected more by the recent liquidity squeeze and resultant growth fears in China. Again, we believe the sell-off is overdone. We expect China liquidity conditions will ease and growth fears will dissipate over the course of the year, removing this hindrance to platinum and palladium price performance."

ETF Securities points out that all bull markets need a correction and the yellow metal has gone through a 12 year rally. But the price corrections have been excessive and has returned the have returned precious metals prices to attractive long-term accumulation levels.

In the near-term it is difficult to see any immediate catalysts for a sustained rebound in the gold price. Gold will likely face headwinds as long as US interest rates continue to rise, inflation expectations continue to fall and the US dollar continues to strengthen. "However, we believe these are cyclical factors that are temporary."

Despite the recent price correction, palladium’s fundamentals remain the strongest across the precious metals sector, according to ETFS. South African production, which accounts for 35% of global palladium production, continues to become more costly.

Key events to watch this week:
US non-farm payrolls on Friday will likely be the main market focus as investors look to see whether employment is moving to
levels the Fed will be comfortable removing QE. The US ISM will also be looked at for similar reasons. Watch also for more potential guidance from Fed memberstrying to talk bond markets down. In Europe, PMIs will be watched for indications that the ECB may have to become more aggressive in easing. In the UK, Mr Carney (formerly of the Bank of Canada) will be taking over Governor King’s seat at Bank of England and investors will be watching closely for any hints of change.


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