PRECIOUS METALS . Por Ricard Torné Lead Economist de Focus Economics

PRECIOUS METALS | Strong U.S. economy and doubts about the global economic outlook weigh on prices in June Prices for precious metals declined for the fourth time in the last five months in June. Precious metals prices fell 1.6% on a monthon-month basis in June (May: -2.2% month-on-month). The U.S. economy continued to expand robustly in Q2, fanning inflationary pressures. As a result, the U.S. Federal Reserve decided to hike its key policy rate for the second time this year at its 12–13 June monetary policy meeting. Moreover, the Fed adopted a more hawkish tone and raised its median projection from three hikes to four in 2018, meaning two more rate increases are now the baseline scenario for this year. Higher interest rates in the United States are eroding the attractiveness of safe-haven assets, including gold and to a lesser extent platinum and silver. High global political uncertainty, however, is providing some support to gold, while prices for palladium, platinum and silver are benefitting from tight supply and still-robust global growth. In this regard, a full-blown trade war between major players could threaten to derail the stellar trajectory of the global economy, reducing demand for key industrial commodities, including palladium, platinum and silver. The implementation of tariffs on USD 34 billion worth of Chinese goods imported to the U.S. and the immediate retaliation by China on 6 July are steps towards further economic uncertainty. Looking ahead, prices for precious metals will be determined by geopolitical risks, although the effects will have an opposite impact on the commodities. While an uncertain global outlook will notably support gold prices, prospects of weaker global growth will dampen demand for industrial commodities. Elevated geopolitical risks, healthy purchases of jewelry and robust industrial demand are expected to lead precious metal prices to rise 2.4% year-on-year in Q4 2018. The FocusEconomics panel sees prices increasing at a broadly similar pace of 2.3% year-onyear in Q4 2019. AGRICULTURAL | Oversupply concerns and geopolitical risks send prices down in June Agricultural prices logged their first fall this year in June. Prices fell for six of the eight agriculture commodities tracked by FocusEconomics. Altogether, agricultural prices fell a sharp 7.3% on a month-on-month basis in June (May: +3.0% mom). Corn and soybean prices declined have markedly in recent weeks as retaliatory tariffs that China is imposing affect U.S. agricultural products. Moreover, excellent crop conditions are exerting downward pressure on prices. Cocoa prices, which posted a stellar start to the year, fell in June as investors expect strong supply from top producers Ivory Coast and Ghana. While the two countries decided to work together to control cocoa prices, analysts expect that this move will have a limited impact on global cocoa prices in the short term. Change in Precious Metals Forecasts Q4 2018 Q4 2019 -2 -1 0 1 Platinum Gold Precious Metals Silver Palladium -1.5 -1.0 -0.5 0.0 Platinum Precious Metals Gold Palladium Silver Note: Percentage change between June 2018 and July 2018. . Source: FocusEconomics Consensus Forecast. Note: Percentage change between June 2018 and July 2018. . Source: FocusEconomics Consensus Forecast. Change in Agricultural Forecasts Q4 2018 Q4 2019 -8 -4 0 4 8 Sugar Coffee Soybeans Agricultural Cocoa Corn Wool Wheat Cotton -6 -3 0 3 Cocoa Sugar Wheat Agricultural Soybeans Coffee Corn Wool Cotton FOCUSECONOMICS Summary FocusEconomics Consensus Forecast | 5 July 2018 While strong market fundamentals should push prices up this year, the increase will be dampened by rising protectionist trade policies affecting agricultural products, and increased supply for key commodities. Our panel of analysts forecasts an 18.1% annual increase in prices in Q4 2018. Agriculture prices are seen expanding 1.9% year-on-year in Q4 2019. Ricard Torné Lead Economist

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