Articles in Category: Precious Metals

Gold bears have had quite a ride since the start of this year. The price spiked to $1,286 per ounce last week, a rise of 11% since the end of last year as this chart courtesy of the Financial Times shows.

Gold in 2017

Source: Financial Times

Despite a gradually improving global economic picture, geopolitical tensions have increased in recent months first with Syria and more recently with President Donald Trump’s announcement that he was prepared to take military action in North Korea.

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In Europe, investors looking to protect themselves against the political risk associated with the first round of the French presidential elections where the fear of a shock victory by the far right leader Marine Le Pen was considered a distinct possibility. During this same period, the U.S. dollar has weakened somewhat in value and with gold inversely correlated to the currency, as the dollar falls gold, and other commodity prices, rise.

Well, what a difference a week makes. North Korea has shown itself to be less capable and in the face of a tougher stance from America, less belligerent than during previous bouts of posturing.

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In the French elections, the least bad option, Emmanuel Macron, has emerged victorious from the first round over Marine Le Pen with nearly all observers expecting he will win through in the second round of voting on May 7. Later this week we should hear President Trump’s tax policies which are widely expected to include substantial reductions in personal and corporate tax rates. On the back of solid U.S. and global economic growth, such inflationary fiscal stimulus will only hasten further U.S. Federal Reserve rate increases. Not surprisingly, Goldman Sachs is not alone in predicting further weakness in the gold price, which weakened promptly on the news of the French elections and is targeted by Goldman to fall to $1,200 per ounce this summer. While not a universal truth, Goldman Sachs predictions do tend do have an element of being self-fulfilling simply because so many investors take their advice into consideration when making investment decisions.

Gold Bears

These gold bears haven’t had as big a run as their metals brethren. Source: Haribo

Of course, there remain counter arguments as to why the gold price may yet rise. Trump’s presidential decrees are easier to make than getting legislature onto the statute book. Proclamations this week over the tax reduction will likely meet a more favorable Republican response than there was the case with healthcare but, even so, may be much delayed or watered-down before having any impact on the economy.

Likewise, U.S. growth could slow reducing the impetus for the Fed to deliver on its three expected rate increases this year. The Fed has frequently undershot rate rise expectations over recent years. Finally, our friend in Pyongyang has the ability, and no doubt inclination, to still do something stupid despite pressure being brought to bear to back down by his Chinese bankers. On balance, though, gold bears have probably had as good run this year as they are likely to get and profit-taking is now inevitable for all but long-term holders of the yellow metal.

The launch of the London Metal Exchange‘s new precious metals contracts will be delayed until July 10, more than a month later than previously announced, it said on Monday.

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The new gold and silver contracts, a mix of daily and monthly contracts designed to enable industrial users to hedge specific dates, were due to go live in early June.

Lighthizer Clears Committee for Confirmation as US Trade Rep

President Donald Trump’s nominee for U.S. trade representative cleared a Senate committee on Tuesday, bringing the administration closely to enacting its full trade policy.

Washington lawyer Robert Lighthizer’s nomination cleared the Senate Finance Committee 26-0. Lighthizer is seen as an ally of the manufacturing industries. The panel also voted to approve a legal waiver for Lighthizer from a 1995 law that prohibits people who did work on behalf of foreign governments from serving as the top U.S. trade negotiator.

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“Bob Lighthizer understands the issues that the U.S. steel industry faces today and we are certain he will make an outstanding United States Trade Representative (USTR),” said Thomas Gibson, president and CEO of the American Iron & Steel Institute, the largest trade group of North American steelmakers. “We thank Senator Hatch and the other members of the Senate Finance Committee for holding an executive session to progress Bob’s nomination. American manufacturers need a qualified USTR and we urge the Senate to promptly confirm Bob Lighthizer.”

Lighthizer’s confirmation now moves on to the full Senate.

This month, some of our metals reached new heights while others saw their rallies noticeably falter.

Aluminum and Raw Steels are still riding high, while complicated supply stories saw stainless and copper fall. Demand from manufacturers for almost all of the metals we track remains strong.

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17 Of the 18 manufacturing industries tracked by the Institute for Supply Management’s index of national factory activity reported growth and no industry reported a contraction last month. Buyers still might want to beware as metal markets are showing more pull-backs than we witnessed in March, despite the overall bullish behavior across the entire industrial metals complex.

Palladium has been the best performer among precious metals for some time now. Since the beginning of 2016, palladium is up 65%, easily beating the price increases seen in platinum, gold and silver.

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What factors made palladium outperform its peers and what should palladium buyers pay attention to this year?

Global Demand for Cars

The primary bullish factor might be the expansion of auto catalyst demand for palladium, particularly in China where air pollution problems are increasing. The auto sector accounts for around 80% of palladium demand.

China’s auto sales for the first two months of 2017 beat expectations and were 8.8% higher than sales for the same period in 2016. The pace is still weaker than the 14% increase reported last year by the industry as customers rushed to take advantage of tax incentives. In Q4 of 2016, China announced a 50% cut in its sales tax from 10% to 5% for small automobiles. The tax cut was effective until the end of 2016.

Most analysts were expecting a big slowdown in the largest automobile market this year, but China continues to surprise markets. The country agreed to extend the cut, although at a higher rate of 7.5%. In 2018 it will revert to 10%. Therefore, while auto sales might not beat last year’s record-breaking levels, Chinese citizens are still expected to take advantage of a lower tax in 2017.

Meanwhile, March’s figures for the world’s second-largest automotive market came in below market expectations and gave early evidence that America’s long boom cycle for automobile sales may finally be losing steam. Automakers sold 1.55 million vehicles in March, a 1.6% decline compared with the same month a year ago, capping a first-quarter performance during growth stalled.

Overall, auto markets were really strong in 2016, contributing to a 50% rise in palladium prices last year. This market might surprise again in 2017 but signs of a plateau in the U.S. and uncertainties in China due to an extended but higher tax cut are factors to watch this year.

Strong South African Currency

South African Rand Index. Source:MetalMiner analysis of @stockcharts.com data.

South Africa is the largest producer of palladium, responsible for around 40% of world output. The Rand (South African currency) has been one of the best performing currencies since 2016. A rising Rand makes South African exports more expensive to the rest of the world, limiting producers margins and potentially leading to a reduction of output. Read more

Our monthly Global Precious Metals MMI dipped down a point in April from last month, losing 1.2% to end up at 83.

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Ultimately, most gold, silver, platinum and palladium price points from the U.S., China, Japan and India dropped off for the month, which led to the sub-index’s overall decline — but there was one price point that decided to blaze its own trail upward.

The U.S. palladium bar price rose 3.4% over the past month, the third straight month of increases on the MetalMiner IndX.

What’s Going on with Palladium?

Well, automotive sector demand for palladium, at least on a spot or short-term basis, would be a hard case to make.

As my colleague, Jeff Yoders, reported earlier this week, U.S. automakers’ sales figures for March came in below market expectations and gave early evidence that America’s long boom cycle for automotive sales may finally be losing steam.

Automakers sold 1.56 million new cars and trucks in March, a 1.6% decline compared with the same month a year ago.

For example, Ford Motor Company took the biggest hit among sales drops, seeing its March numbers fall more than 7% from February’s.

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According to a recent Seeking Alpha article, “going into 2017 the market was considering limited supply to be the primary factor supporting palladium prices,” with limited sector growth expected from the U.S. and European markets, and China being the only auto market to be counted on for buoyed sales.

The above has generally held true, while seasonality and investor interest in ETFs seemed to have been playing into palladium’s rise. This could well be the high point for palladium prices this first half of the year.

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The Architecture Billings Index returned to growth mode in February, after a weak showing in January. An economic indicator of construction activity, the ABI reflects an approximate nine-to-12 month lead time between architecture billings and construction spending.

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The American Institute of Architects (AIA) reported the February ABI score was 50.7, up from a score of 49.5 in the previous month. This score reflects a minor increase in design services (any score above 50 indicates an increase in billings).

ICE Delays London Gold Price Benchmark

Intercontinental Exchange (ICE) has delayed the launch of clearing for London’s benchmark gold price because not all participants in the auction will be ready, two sources involved in the process told Reuters on Tuesday. The delay could weaken its bid to become the dominant exchange in London’s $5 trillion-a-year bullion market, sources say.

 

The World Platinum Investment Council‘s bullishness on platinum as a key investment and industrial asset, which we reported on last fall in an interview with the Council’s Director of Research Trevor Raymond, seems to be bearing fruit as we approach the end of Q1.

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Platinum bar prices and a couple other precious price points led MetalMiner’s Global Precious Metals MMI to rise 2.4% for March 2017, landing at a value of 84.

Global Precious MMIIndeed, the U.S. platinum bar price, up by nearly 3% this month, has been on an upward trajectory for the past three months, starting the month out above the $1,000-per-ounce level for the first time since October 2016.

A Focus on Platinum

Worries over supply shortages of the namesake of platinum group metals (PGMs) are still behind the investment opportunities that the WPIC foresees — so much so that the Council is pushing new initiatives on two separate global fronts.

Although holdings of platinum-backed exchange-traded funds (ETFs) fell to their lowest since mid-2013 last October, Reuters reported that WPIC “plans to launch an ETF in China, the world’s biggest consumer of the precious metal, and a coin-based fund in Europe in 2017,” according to an executive of the council.

“We are working on two deals in China for investment products. (An) ETF and retail platinum bars with a big state-run enterprise,” Marcus Grubb, director of market development at WPIC, told Reuters. The ETF itself was formed by leading platinum producers to develop investor demand for the metal, according to the news service.

Grubb told Reuters that India’s platinum jewelry sales are rising by 25-30% a year. The PGM’s star has been rising on the subcontinent, with some questioning whether it will overtake gold as the go-to in jewelry demand in India (which is the world’s second-biggest gold consumer, so not likely anytime soon…but still).

The council will also launch a $50 million coin-based platinum fund in Europe, he told Reuters.

Auto Market Fine…For Now

It helps that car sales still appear to be cruising along, even if at, well, only cruising speeds. Even though U.S. car sales dropped 1.1% in February over the same month last year, total vehicle sales in China, including trucks and buses, came in 0.2% higher year-on-year to 2.5 million units.

But, as my colleague Jeff Yoders reported, China is also entering the planned final year of a major government automotive purchase rebate which could affect sales as the incentive winds down. What this will mean for platinum use in vehicles remains to be seen.

The Supply Game: Latest Producer Moves

Back to the supply side. Shortage concerns have recently caused companies such as South Africa’s Northam Platinum Ltd. to buy up more platinum assets including mines, in this case from Glencore, Reuters reports.

Glencore’s Eland mine, containing some 21.3 million ounces of the metal, play into the Northam’s long-term production strategy — which, of course, banks on continued demand and higher platinum pricing.

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However, Northam said that the global economic outlook and low-dollar metal prices “remain a concern for them, at a time when it faces increasing power and labor costs,” according to Reuters. As of this writing, $1 = 13.08 rand, worse than last month.

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It is rare that companies with a professional reputation like those of Thomson Reuters and the CME Group compete for the privilege of running such an important price benchmark as the London Silver Fix, a global benchmark that has been in place 117 years and has its origins in the London coffee shops of the 1700s. Even more rare? To announce after three short years they are stepping down from providing that service.

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CME Group and Thomson Reuters assumed control of executing the daily Silver Price Fix on Aug. 14, 2014, from the London Silver Market Fixing Company. CME Group has been providing the electronic auction platform on which the price is calculated and Thomson Reuters has been responsible for administration and governance of the LBMA silver price both our own Jeff Yoders and Reuters reported. So why, once a suitable replacement can be found, are the two firms stepping down from their respective roles in running the LBMA Silver Auction?

The simple truth seems to be that they are not making any money out of it. According to MarketWatch, new European legislation set for implementation in January 2018 will regulate the provision of, contribution to and use of a wide set of benchmarks which are highly regulated and deeply scrutinized, the site quotes Ross Norman Chief Executive Officer of Sharps Pixley Ltd. as saying.

“It follows there is much work and cost, but for very modest commercial reward, plus the ever-present danger of legal action or reputational damage — whether guilty or not.” Norman said. ‘Few sensible or sane people would want to create a financial benchmark — and, yet, it is absolutely necessary for the normal functioning of markets.”

You should ask, if that is the case, and Ross Norman probably knows better than anyone, who is going to take it on?

One site valued the total of above-ground silver holdings at approximately 1 billion ounces, putting the physical value at some $17 billion, but Bloomberg assessed the total silver-based financial market at closer to $5 trillion, much of which takes its price cue from the London Fix. It seems inconceivable that one of the major banks, or a number of them in cooperation, that currently contribute to the LBMA silver price will not step in to take over.

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If they don’t, the Silver Fix could conceivably migrate to Shanghai in the same way that the center of gravity for gold price-fixing has been gradually migrating east over the last decade.

CME Group and Thomson Reuters will step down from providing the LBMA silver price benchmark auction, the London Bullion Market Association said on Friday, less than three years after they successfully bid to provide the process.

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“In consultation with the LBMA, CME Group and Thomson Reuters have decided to step down from their respective roles in relation to the LBMA Silver Price auction,” the LBMA said in a members update seen by Reuters.

The two will continue to operate and administer the silver auction until a new provider is appointed, the LBMA said. It will launch a new tender to appoint an alternative provider to operate the process “shortly”, it said.

“We would be looking to identify a new provider in the summer, and have the new platform up and running in the autumn,” an LBMA spokesman said.

The two companies launched the LBMA silver price in August 2014 to replace the telephone-based London silver “fix,” which had been in operation for more than a century, with an electronic, auction-based and auditable alternative.

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CME Group provides the electronic auction platform for the benchmark, while Thomson Reuters is responsible for administration and governance. The LBMA owns the intellectual property rights.

Philippines Might Consider Indonesia-Style Ore Export Ban

The Philippines may consider banning exports of raw minerals to encourage domestic processing and boost the value of shipments, an environment official said on Friday, as the government looks to extract more from its mining sector after a crackdown.

Gold prices have gained 9% this year, regaining much of the losses seen after the U.S. presidential election.

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A stronger dollar and expectations for economic growth drove investors out of the safe-haven asset. What’s now sending investors back into gold? and, is this gold rally the beginning of gold’s revival or just a dead cat bounce?

Buying The Dip

Gold rises in 2017. Source:MetalMIner analysis of @stockcharts.com data.

Although a 9% increase might look impressive, it really isn’t. Gold previously lost $180 per ounce in less than two months. After such a big slump it’s normal see a price rebound since many investors will see the significant dip as an opportunity to buy gold at a discount.

To me, this doesn’t mean that gold’s underlying fundamentals have improved. Prices still have yet to test stiff resistance near $1,300 per ounce. This rally could lose steam in March.

The US Dollar

The US Dollar Index since March 2016. Source: MetalMiner analysis of @stockcharts.com data.

Perhaps, the single factor contributing most to this year’s gold rally is a weaker dollar. Weakness in the dollar also comes because the currency rose very fast in the last quarter of 2016. In addition, President DonaldTrump made comments that he desires a weaker dollar and that has also weighed down the currency.

Last week, Federal Reserve officials said they plan to raise rates “fairly soon,” but they left investors doubting that the central bank will act at its March meeting. The Fed raised interest rates in December and cited plans to raise rates as many as three times in 2017. Higher rates tend to weigh on gold, since the precious metal becomes less less attractive compared with yield-bearing assets when borrowing costs rise.

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This month the dollar seems to be finding some support. We’ll have to wait and see if the currency can resume its bull market run, which would be quite bearish for gold prices.

Stock Markets

The S&P 500 hits all-time highs. Source: @Stockcharts.com.

Trump has frequently told U.S. citizens he remains committed on both tax reform and regulatory cuts since entering the White House, which has created optimism among investors. We already presented the case for a bull stock market back in January.

A Trump administration for the next four years might be just what the doctor prescribed to keep this aging bull stock market going, even with seven-plus years of gains behind its back. At least that’s what it looks like thus far. U.S. stock indexes are trading at all-time highs, which is not helping gold as a safe haven.

What This Means For Metal Buyers

The recent strength in gold prices is something to keep an eye on. However, keep in mind that this rally might just be a dead cat bounce. A rising stock market, a healthy U.S. dollar and gold prices meeting resistance are factors that could keep a lid on gold’s rally.