Articles in Category: Precious Metals

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.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

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.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

“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.

We warned last month that the mostly small losses the prices our MetalMiner IndX experienced were caused by investors taking profits.

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Our suspicions were confirmed when almost all of our sub-indexes had big price rebounds this month. The Automotive MMI jumped 12.2% Raw Steels 8% and Aluminum 6%. Even our Stainless Steel MMI only dropped 1.7% and has taken off since February 1 as nickel supply is even more in question now with both the Philippines and Indonesia’s raw ore exports in question.

The bull market is on for the entire industrial metals complex. Last month’s pause was necessary for markets to digest gains but the strong positive sentiment for both manufacturing and construction shows no signs of ebbing in the U.S. and Chinese markets.

India is the world’s second-largest importer of gold after China.

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India’s gold import bill was up 12% in 2015 reaching $35 billion. 2016 final numbers are expected to come in at about the same rate, although a sharp drop in demand during December — said to be due to Prime Minister Narendra Modi’s move to scrap 500- and 1,000-rupee banknotes as a “demonetization” crackdown on corruption and tax evasion — is said to have hit the largely cash-facilitated gold jewellery market hard in the short term.

Even so, Gold imports are a considerable burden on India’s balance of payments coming second only to oil in the demand it puts on India’s foreign exchange reserves. India imports 900 to 1,000 metric tons per year, but local gold output is just 2 to 3 mt per year. In the same way that the Indian government has encouraged onshore and offshore oil exploration, you would expect indigenous gold mining would be an industry the government actively encourages.

Although India has mines that go back more than 120 years, its annual gold production is miniscule. According to an article in the Hindu times that could be about to change. The Kolar gold field was forced to close in 2001 due to mounting losses at operator Bharat Gold. The state-owned company had been mining the Kolar reserves since independence in 1947 but the mines are deep — down to 3 kilometers — and Bharat was operating with outmoded technology and a large, unproductive legacy workforce. But Mineral Exploration Corp. estimates show reserves to be worth $1.17 billion in the mines, with another $880.28 million in gold-bearing deposits estimated to be left over in residual dumps from previous mining operations.

How Can India Mine More Domestic Gold?

It is debatable whether state-owned Bharat gold has the expertise to economically exploit such deep and relatively low-grade reserves, but established global miners such as Vedanta may hold more potential. In February 2016, the firm became the first private company to successfully bid for a gold mine in India — the Baghmara gold mine in Chhattisgarh — a mine with potential gold reserves of 2.7 mt of contained metal. Sure, that’s a fraction of Kolar’s 35-mt potential but a good start for a firm of Vedanta’s standing to start in India’s gold mining sector.

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India is never likely to rival South Africa, Canada or Australia as a gold miner, but that’s not the point. Any contribution to the domestic market will lessen the impact gold imports have on the country’s balance of payments. With domestic reserves estimated at over 100 mt there appears to be scope, with the right state and government backing, for miners to reduce some of those imports and create domestic employment.

Well, perhaps these rebounds are not quite worthy of The Worm — but our Global Precious Metals MMI has hit its highest level since October 2016, climbing 7.9% to 82 for the February reading.

PGMs Lead the Way

Two of the biggest movers on MetalMiner’s precious metal sub-index were U.S. prices of platinum and palladium, rising 10.2% and 10.9%, respectively.

That palladium increase nearly got the price to the 18-month December 2016 high.

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Here’s the deal with palladium in a nutshell, from MoneyWeek:

“Both U.S. and Chinese car sales have been solid of late, with the latter rising at their fastest pace in three years (in 2016) and the former potentially set for another boost thanks to President Trump’s fiscal stimulus. China’s pollution problem is forcing it to tighten car emission standards, adds Chen Lin on Equities.com, which implies a steady rise in demand for palladium over the next few years.

“On the supply side, South Africa, the world’s top supplier, is not expected to increase mined output much. Analysts reckon that dwindling sales from Russia’s stockpiles means they are probably nearly depleted. TD Securities thinks the market deficit could double this year.”

What a Gold Mine!

Our intrepid editor at large, Stuart Burns — you might remember him from world-class macroeconomic coverage as it pertains to industrial metals, or (our) voice of James Bond’s Q — recently explored the wilds of India, and with him, he brought back gold.

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Or, to be more accurate, some gold coverage.
Soon we’ll publish Stuart’s take on the gold import situation in India. Here’s a taste:

“Although India has mines that go back more than 120 years, its annual gold production is miniscule. According to an article in the Hindu Times, that could be about to change. The Kolar gold field was forced to close in 2001 due to mounting losses at operator Bharat Gold. The state-owned company had been mining the Kolar reserves since independence in 1947 but the mines are deep, down to 3 kilometers, and Bharat was operating with outmoded technology and a large unproductive legacy workforce. But Mineral Exploration Corp. estimates show reserves to be worth $1.17 billion in the mines, with another $880.28 million in gold-bearing deposits estimated to be left over in residual dumps from previous mining operations.

India is never likely to rival South Africa, Canada or Australia as a gold miner, but that’s not the point — any contribution will lessen the impact gold imports have on the country’s balance of payments. With domestic reserves estimated at over 100 metric tons, there appears to be scope — with the right state and government backing — for miners to reduce some of those imports and create domestic employment.”

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MetalMiner’s index of global precious metals prices dropped yet again this month, falling 3.8% for a January 2017 reading of 76, down from 79 in December.

Key Precious Metal Movers

The U.S. palladium price got a bit too frothy last month, resulting in a December MMI reading of $768 — which was good enough for an 18-month high.

However, for the January MMI reading, that price experienced a pullback, dipping back down under $700 per ounce (although not quite reaching November’s levels).

So a correction in that price point’s journey is evident. The U.S. platinum bar price also had a slight drop-off, as did silver and gold prices across global markets tracked by the MetalMiner IndX.

What’s Happened Since October?

Short answer: a ton.

Trump. Cubs. Brexit. Syria. Refugee crises. Panama Papers. Pokemon Go. (We could keep going…)

But a few of those had a lot to do with what’s happening across precious metals markets right now — especially gold.

Gold in Focus

What’s causing gold prices to fall dramatically? The U.S. dollar.

Gold (in dark) vs the dollar index (in green)

Gold (in dark) vs the dollar index (in green). Source: MetalMiner analysis of @stockcharts.com.

Since mid-August the dollar started a bull run that is still in play. Three main factors are propelling the dollar’s bull run, according to MetalMiner’s Raul de Frutos:

Markets expected the Federal Reserve to raise rates by the end of the year. In December the Fed raised interest rates by a quarter point, as expected, but policymakers signaled a likelihood of three increases in 2017, up from prior expectations for two moves. While interest rates outside the U.S. stay near zero or even in negative territory, it’s no wonder yield-seeking investors are going after the greenback.

The ongoing political tensions in Europe are causing the dollar to appreciate against the euro. The ongoing refugee crisis in Europe, Brexit, terrorist attacks and political instability are some of the events causing investors to lose their appetite for the European currency this year.

Finally, the victory of Donald Trump has added fuel to the dollar’s bull market. The new president-elect has proposed new tax policies that will potentially make multinational companies bring their foreign profits back to U.S., increasing the demand for dollars. In addition, the dollar is perceived as a stronger currency since investors expect growth in US to get a boost.

Essentially, what we wrote last month is still holding true, and it’s hard to see a reversal in the near term.

Exact Precious Metals Prices, Movements:

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Gold prices since 2013

Gold prices since 2013. Source:MetalMiner analysis of @stockcharts.com data.

Gold is the only commodity wherein physical annual demand is only a tiny fraction of total supply available and shortages of gold caused by physical demand never happen.

Therefore, China’s demand growth for metals or the potential boost in U.S. infrastructure spending are factors that aren’t really helping push gold prices higher unlike industrial commodities.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

What’s causing gold prices fall dramatically? The U.S. dollar.

Gold (in dark) vs the dollar index (in green)

Gold (in dark) vs the dollar index (in green). Source: MetalMiner analysis of @stockcharts.com.

Since mid-August the dollar started a bull run that is still in play. Three main factors are propelling the dollar’s bull run:

Markets expected the Federal Reserve to raise rates by the end of the year. In December the Fed raised interest rates by a quarter point, as expected, but policymakers signaled a likelihood of three increases in 2017, up from prior expectations for two moves. While interest rates outside the U.S. stay near zero or even in negative territory, it’s no wonder yield-seeking investors are going after the greenback.

The ongoing political tensions in Europe are causing the dollar to appreciate against the euro. The ongoing refugee crisis in Europe, Brexit, terrorist attacks and political instability are some of the events causing investors to lose their appetite for the European currency this year.

Finally, the victory of Donald Trump has added fuel to the dollar’s bull market. The new president-elect has proposed new tax policies that will potentially make multinational companies bring their foreign profits back to U.S., increasing the demand for dollars. In addition, the dollar is perceived as a stronger currency since investors expect growth in US to get a boost.

What This Means For Metal Buyers

As long as the dollar continues to rise, there is little hope for gold investors to make returns. Gold buyers should wait closely for weakness in the dollar before buying gold. For now, sentiment on the dollar continues to be quite bullish.