Looking to precious metals? Watch these trends

The depreciation of the Chinese renminbi and its impact on precious metals has gone largely unnoticed, says Scott Vali, formerly vice-president of equity for CIBC Asset Management.

But, “[China] continues to depreciate that currency, and that’s a deflationary shock [to] the global system,” says Vali. However, “we’re still fairly constructive on gold. There are always gyrations in the near term but [gold’s] well supported as we look out.”

The U.K. referendum and threat of Brexit has also affected the bullion market. “Brexit has increased the uncertainty around growth rates not only in the U.K., but has also now put question marks around the sustainability of the Eurozone and [its] growth,” says Vali.

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This has meant the U.S. Federal Reserve is likely to pause in terms of its rate hike expectations, he adds, but that’s positive for bullion market. “In that environment, we think gold will continue to do well.”

He notes, “We’re also seeing interest rates on government bonds and 10-year bonds move into negative territory, both in Germany and in Japan. That’s creating an environment where constituents in those markets are now looking outside for yield, and they’re moving to the U.S. and other areas where […] they’re driving up the value of bonds.”

Read: Two hikes from the Fed this year? Still unlikely, says expert

Interest rates around the globe are likely to remain negative for a longer period, Vali says, and that, in turn, is also supportive for gold.

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Silver, platinum and palladium

In some cases, “silver can be a higher-beta way of playing gold,” says Vali. “It tends to react with the economy. So if the economy looks like it’s becoming more robust, silver historically has done a little better than gold.”

The outlook for platinum and palladium is tied to the performance of the automotive and industrial industries. “[They’re] used as metals in exhaust manifolds and, as such, they’re impacted by industrial production,” he adds. “And, more specifically, they’re impacted by automotive and trucking entities. We’re less certain about the value of those metals going forward.”

In addition, platinum and palladium markets are impacted by currencies and the cost of production. “We’ve seen the South African rand depreciate somewhat over the past few years, and that means the cost of producing platinum and palladium has also declined. In some cases, the supply and demand balance has [become] less favourable.”

Overall, says Vali, “There are more dynamics to look at when you’re looking at platinum and palladium, from [both] an industrial demand standpoint and a supply standpoint, than perhaps there is with gold.”

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