Gold and most precious metals are still gaining from the bounce they received after the U.K. voted to leave the European Union and most bankers and analysts expect that to continue. In contrast, European aluminum premiums are falling.
Poll: Gold’s Brexit Bounce Has Legs
Britain’s vote to leave the European Union has led analysts to raise their gold price forecasts again this year, after the decision shook up financial markets and sparked a rally in the precious metal to two-year highs.
A poll of 25 analysts and traders over the last two weeks returned an average price forecast for this year of $1,280 an ounce, up from $1,209 in a similar survey in April, and nearly 15% higher than a poll at the start of the year.
European Aluminum Surcharges Keep Falling
Surcharges for physical aluminum in Europe are expected to gradually extend their recent decline due to sluggish demand as metal is released from warehouses when finance deals become less lucrative.
The premiums, which consumers pay on top of the London Metal Exchange cash price for immediate delivery, were quoted at $115-$120 a metric ton for duty-paid metal in Rotterdam, down some $10-$15 in recent months and from $140-$150 in early February.
Six little letters have dominated the political and economic news cycle over the past month or so: BREXIT. While the long-term effects of Britain’s vote to exit the European Union won’t be felt for awhile, the surprising result has already roiled global markets, including commodities in general and metals specifically.
Our biggest winner of the Monthly MMI series, the Global Precious Metals MMI, gained the most from June to July, primarily driven by gold prices (themselves driven by near-term investor moves over to safe-haven assets brought on by the Brexit vote).
Some have indirect Brexit connections, such as our Renewables MMI and the consequences of the U.K. announcing it won’t make E.U. 2020 climate reduction goals… which it won’t need to if it completes its exit before 2020 (likely). Others, like our GOES MMI, were not affected at all.
The value of the U.S. dollar, China’s import/export activity, and international trade cases (especially those in the ferrous realm should continue to be watched by industrial metal buyers during these dog days of summer. However, we wish our British colleagues well in these politically uncertain times and offer our recent webinar to help them navigate the newly choppy purchasing waters.
Every single price point across the precious metals tracked by the MetalMiner IndX — gold, silver, platinum and palladium — increased over the month of June, helped mainly along by the boon that Brexit has been (for precious producers, anyway…more on that below).
As a result, our monthly Global Precious MMI for July shot up 8% to 83, the index’s highest value since June 2015.
Exit Britain, Enter Gold Price Increases
Britain’s vote to exit the E.U. left the pound Sterling in turmoil, with the British currency recently troughing at a new 30-year low, with no end to the bleeding in sight, while the Euro has also suffered. We all know what that means: investors flocking to safe-haven assets, such as gold. Which, in turn, means producers will be able to justify keeping near-to-medium-term mine production levels and exploration status quo (at least).
The U.S. bullion price of the yellow metal jumped 8.7% month over month, a significant increase. (Correspondingly, US silver bars shot up 17.2%.) Just after the Brexit vote results came in, HSBC analysts predicted that gold will breach $1,400 per ounce. It has already been flirting with the high $1,300s the past couple weeks and, according to HSBC Chief Precious Metals Analyst James Steel, “the drive higher may be more than 10% in the longer term if there were to be broader concerns about the future direction of the E.U. after the vote,” as originally reported by Kitco News.
Investors Go Long
Adding more fuel to that fire, hedge funders increased their net long positions in COMEX gold and silver contracts to record highs by the end of last week, further showing their bullishness in the safe-haven asset, according to Reuters.
Another major driver of the gold price has been the U.S. bond market. As my colleague Raul de Frutos has written, treasury prices soared and yields plunged to four-year lows as investors continued to seek haven assets. The benchmark 10-year Treasury yield fell as low as 1.45% two weeks ago, the lowest level in four years. Bond yields not only fell in the U.S.; British 10-year government bond yields sank below 1% on Monday for the first time ever. Similarly, Japanese bond yields fell below 0.1% for the first time, reflecting unprecedented long-term pessimism.
The lower the yield, the lower the returns investors get from their bonds. That’s important, because in periods where yields are near zero, many investors prefer to buy gold rather than bonds. In this manner, in the current stock market turmoil, part of the money that would normally go to assets paying a yield is going to gold instead.
Negative interest rates worldwide also help gold’s case.
Big M&A News: Centerra Gold + Thompson Creek Metals
All this Brexiting has prepped large Canadian miner Centerra Gold to pull the trigger on acquiring Thompson Creek Metals last Tuesday, based in Denver, as reported by Reuters.
The main reason: Centerra owns and operates its main asset, the Kumtor gold mine, in Kyrgyzstan, and seeing as how the Asian nation wants a bigger cut of Centerra’s pie lately, the Canadian miner wants to reduce its exposure in Asia while boosting its footprint in North America.
With the recent upsurge in gold prices, times for miners such as Centerra are looking quite rosy.
For full access to this MetalMiner membership content: Log In | Join
This week was more about markets shaking out from the initial shock of the U.K. actually voting to leave the European Union. U.K. politicians tried to stress stability, assuring India’s Tata Steel that the nation is still offering a lucrative equity stake and pension relief deal to keep the company’s sprawling Port Talbot, South Wales, steelworks open. Of course, Tata’s not buying it. At least not yet, as the whole steel deal making landscape has shifted in Europe. Could be that Tata just realized it has all of the leverage right now and U.K. politicians will have to sweeten the pot to keep Port Talbot’s doors open.
Gold is up as investors look to shield their money from volatile stock markets. Source: Adobe Stock/Nikonomad.
But things aren’t all unicorns and rainbows back in the E.U., either. Regulators in Germany are investigating the novel idea of a buyers’ price fixing cartel. You heard that right. Not a conspiracy of sellers to fix prices — like when Apple and several publishers colluded to set e-book prices and we all got Amazon credits for it — but one by German automakers and original equipment manufacturers such as BMW, Volkswagen, Robert Bosch, ZF Friedrichshafen and Daimler to somehow fix prices of the steel that they buy to create the cars they sell.
The fact that the buyers don’t have the power to set prices like sellers do did not deter the Federal Cartel Office, also known as the Bundeskartellamt, an independent “higher federal authority” established to protect competition in Germany.
MetalMiner Executive Editor and Co-Founder Lisa Reisman pointed out that it’s highly unlikely that all six companies decided that they would collude to extract steel price concessions from Germany’s largest steelmaker ThyssenKrupp AG, leaving ThyssenKrupp without a home for all of that hot-dipped galvanized steel it’s trying to sell to automakers. In that scenario, where would Germany’s automakers go for all of their steel? China? The U.S.? Good luck with your investigation, Bundeskartellamt.
The British government’s offer of financial aid to Tata Steel U.K. and to potential buyers of its assets is still on the table — including its massive steelworks in Port Talbot, South Wales — business minister Anna Soubry told Reuters on Wednesday, despite Britain’s vote last month to leave the European Union.
Seeking to avoid thousands of job losses, the government had offered millions of pounds in support for the company and its potential buyers. It also pledged to take a 25% equity stake in Tata’s U.K. branch and reform the British Steel Pension Scheme (BSPS).
Gold Hits a Two-Year High
Gold increased for a seventh straight session after touching its highest point in more than two years in the previous session as investors are still seeking safe-haven assets even as stock markets are tentatively bouncing back after the U.K.’s Brexit vote last month.
Read all about the implications of Brexit and other recent developments for metals markets in our July Monthly Metal Buying Outlook.
Our Monthly Metal Buying Outlook allows you to receive short- and long-term buying strategies with specific price thresholds. If you would like to trial our metal price forecast, click below to get two free months of reports.
Brexit was enough to shake markets and trigger a panic-driven stock market sell-off. Investors looked for safe-havens like gold, the Japanese yen, Swiss franc and bonds. Gold prices will continue to gain if markets get uglier, which we see as likely. Read more
The British pound slumped to its lowest level since 1985 early this morning as results of the U.K.’s vote on European Union membership came in with the leave campaign winning the vote by close to a 2% margin.
The currency tumbled to as low as $1.3460 on Friday, which was its lowest level in 31 years.
It fell about 10% from the 2016 high of $1.50, which it hit just hours earlier when most polls suggested the remain campaign had a slight polling lead. That was before polls closed.
As of this writing, Dow Jones Industrial Average futures are down 600 points, nearly 3%, hours before U.S. markets open. Japan’s Nikkei Average, which was open and trading as the votes were counted, dropped 8% while the U.S. dollar briefly fell below 100 yen to a dollar.
A federal judge has ruled the federal government cannot set rules for hydraulic fracturing or “fracking” on public lands and, no matter what the U.K. decides in its EU Brexit vote, gold’s bull run is likely over.
Judge Tells Interior Dept. it Can’t Set Fracking Rules
A federal judge in Wyoming made permanent a temporary block of an Interior Department rule setting stricter standards for hydraulic fracturing on public lands, a blow to President Barack Obama’s environmental agenda in the sunset of his administration.
U.S. District Judge Scott Skavdahl issued a ruling late Tuesday invalidating the regulation, saying the Interior Department lacked the authority to issue it. The same judge last year issued a preliminary injunction blocking the rule until he made a final decision.
The rule, issued by department’s Bureau of Land Management in March 2015, applies to oil and gas drilling on federal lands, which produce 11% of the natural gas consumed in the U.S. and 5% of the oil, according to government data. The government can appeal the ruling.
Brexit Vote Likely to End Gold’s Run
No matter if the U.K. votes to stay in the European Union or leave, Gold’s sharp gains on uncertainty over its membership are likely to come to an end after Thursday’s referendum.
There are mainly three factors contributing to the price move:
Gold hits new highs on falling bond yields and economic fears. Source: @Stockcharts.com
The yellow metal is being bought as a hedge against falling global stocks. The unusually dovish comments from the Federal Reserve last Wednesday showed a lot more pessimism on the U.S. and global economy while investors fear that central banks are losing their ability to boost global stocks or economies. Moreover, this week’s British Brexit vote is causing a lot of global volatility.
NYSE Composite Index acting like 2007’s top. Source: stockcharts.com
As we warned in May, stock markets pulled back in June. There is no guarantee that the worst has passed. Indeed, so far we are just witnessing choppy action.