JOHANNESBURG (miningweekly.com) – The price of gold and silver bounced higher in the first week of the new year, rising by over 1% on safe-haven bids, as tensions between Iran and Saudi Arabia mounted in the wake of the two countries breaking off diplomatic relations, research by Mitsubishi Corporation International has noted.

The Precious Metals Weekly Update report revealed that gold had been helped by a bounce in the euro against the dollar, following an advance in Eurozone manufacturing activity to its highest level since April 2014.

“Platinum and palladium were dancing to a different tune, however, falling early on the first full trading day of 2016, after China’s Caixin purchasing managers’ index came in at 48.2 in December against a previous reading of 48.6 and forecasts of 48.9.

“This marked the tenth successive month that China’s manufacturing sector has been in contraction and bodes ill for offtake of platinum-group metals (PGMs) in industrial and jewellery applications,” the report read.

Mitsubishi pointed to a possible commodity investment index rebalancing in the coming two weeks, which could see a modest sell-off in these metals.

It added that the performance of the precious metals complex in 2016 would strongly depend on the pace of US interest rate rises, through the transmission mechanism of the dollar and the yield environment.

A further rate hike as early as March or April could lead to a rebound in the dollar and a rally in US Treasury yields, putting pressure on gold and its sister metals, the group cautioned.

“If, however, the payroll data shows considerably less than 200 000 new jobs created in December or Wednesday’s manufacturing and private jobs data disappoints, the implication will be that the US economy is not ready for further rate rises, and a bullion-benign ‘lower for longer’ rate environment could prevail,” said the report.
 
Looking to individual metals, platinum prices closed the year 26% lower than at the start of 2015 – the worst yearly performance since 2008.

Platinum was currently testing the 50-day moving average (DMA), having traded above this level briefly last week for the first time since early November.

Should the metal break out above the 50-DMA it would go on to target $900/oz, with possible resistance at $901/oz, the report held.

On the downside, decent support was apparent at $872/oz and a modest uptrend was still apparent since the lows of $824/oz in early December.
 
“The weak rand is helping to protect South African PGM producers from the worst of the decline in underlying dollar-denominated metal prices, but, nonetheless, PGM producers are entering 2016 in extremely difficult circumstances and some restructuring of mining operations this year seems inevitable, with or without any labour strikes.

“This should ultimately be supportive of prices, in the longer run,” asserted Mitsubishi.

Meanwhile, palladium lost 30% of its value in 2015, treading water just above $550/oz in thin trading over the holiday period, but now testing that level to the downside.

“The reaction to the contraction in Chinese manufacturing, together with a 7% drop in the Shanghai Composite Index, seems to have hit perceptions towards palladium and its industrial prospects particularly badly.

“Despite this, offtake of palladium by the automotive sector in China was strong in the final quarter of last year, while US car sales are expected to come in strongly when data is released over the next couple of days,” the report noted.

Gold ended 2015 down $130/oz, or 10%, on the start of the year – its worst performance since 2013.
 
The company stated that, should gold manage to break out above the 23.6% retracement of the October high to December low at $1 080/oz, or the 50-DMA at $1 083/oz, it could increase to $1 100/oz.

Silver, meanwhile, lost 11% of its value during 2015, the smallest yearly drop in three years.