I have been telling my colleagues that a continued rise in risk aversion would likely see gold outperform equities and other commodities as cautious investors moved into safe haven assets such as gold, US Treasuries and German Bunds. This view has played out with gold holding up relatively well compared to cyclically driven commodities such as oil, copper and PGMs. Indeed, net speculative positioning confirms this trend with the number of net long gold contracts holding up better than those for the general complex, which has recently broken an uptrend. Going forward, I expect gold to continue outperforming equities and commodities.

From a technical perspective, gold remains in its broad uptrend and has recently hit a new high of US$1,252/oz. While I would not rule out a move back to support around the US$1,150-1,200/oz area on a short-term basis, I remain upbeat with regard to gold prices and continue to target a move to the US$1,300/oz area. Risks of a sovereign crisis in the Eurozone have not dissipated, and potential for a sharp slowdown for the global economy in H210 has contributed to uncertainty.

Gold has outperformed the dow in recent weeks, and I see potential for this trend to continue. The Dow-Gold ratio, broke below 13-month support around 9.4x in early May to trade at 8.2x at the time of writing. I believe that this is indicative of recent shift in investor appetite from risky assets towards perceived safe havens. From a technical perspective, the push below the 8.5x area could set up additional downside towards the March 2009 low of 7.1x. While we are not there yet, it is likely that persistent sovereign debt concerns, combined with financial market turbulence would compress the ratio further, in line with the ratio’s 10-year secular trend.

Furthermore, I have also been highlighting the breakdown in the relative value play between platinum and palladium. Back in Q109, I suggested that palladium would outperform platinum, and this view played out with the Platinum to Palladium ratio moving in palladium’s favour until recently. However, in mid May, I highlighted that the relative value trade could be reversing, with platinum becoming the outperforming metal. Moreover, with this in mind, I expect gold to outperform both platinum and palladium over the short term.