gold price

Bolstered by a weaker dollar, global precious metals rose last month as industrial demand for palladium was finally joined by higher gold bullion and platinum prices.

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The number of Americans applying for first-time unemployment benefits inched up by 3,000 to a seasonally adjusted 265,000 in the week ended May 2, the Labor Department said recently. This was less than the 275,000 economists predicted and within reach of the unrevised 262,000 level for the prior week—the lowest since 2000.

This is the latest sign that an interest rate hike may come from the Federal Reserve as continued improvement in the US labor market might clear the path for rate hikes.

How High Will They Go?

Once the Fed starts the cycle of interest rate increases, the market can focus on how high the rates may rise, which will be less of a weight since the expectation is that rates won’t rise very much. Higher interest rates are bearish for gold because they give investors a reason to move money into investment vehicles that produce a yield. Gold has no yield.

End of the Stock Supercycle

There is also rampant speculation that a combination of downward earnings revisions and the difficulty of the banking system to turn bank reserves into money growth will lead to a large correction in the stock market. Precious metals are also a hedge against falling stocks.

The monthly Global Precious Metals MMI® registered a value of 84 in May, an increase of 1.2% from 83 in April.

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Without major central bank actions, precious metals will continue to fall in Q2 and possibly longer.

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The decline that began in February has taken hold and looks to be a long-term trend that won't end, based on market forces alone, for some time.

The monthly Global Precious Metals MMI® registered a value of 83 in April, a decrease of 3.5% from 86 in March.

Palladium Weakness

With most of our metals still in bearish territory, even if they're posting small gains on the monthly MMI, global precious was a bright spot through January, when it was still being bolstered by strong industrial and investor demand for palladium. That demand began dropping last month and, without palladium to prop it up, our index fell even further this month without much hope for recovery.

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As my colleague Raul de Frutos pointed out recently, palladium has broken a key support level and this indicates that selling pressure is increasing as the metal declines. It's now recording lower high points on the CME's spot index and that's a clear sign that there is diminishing buying pressure during upward bounces.

Palladium-backed exchange-traded funds also saw their biggest weekly outflows (more than 50,000 ounces) since August last week. A strong dollar and low oil prices look like barriers that automotive demand, alone, can't overcome for palladium. The mining cost of platinum and palladium has gone down with the ruble in top producer Russia and supply should be abundant enough to meet demand as production is being buttressed by the favorable exchange rate there and in number two producer South Africa.

Meanwhile, in Goldville...

Gold is still falling in most of the world in the face of that strong dollar, as well. While many long-term forecasts predict that Chinese and Indian demand will eventually propel the world's favorite investment metal upward, the continuing strength of the dollar as a reserve currency is hurting it even more than base metals with more industrial uses.

The Federal Reserve remains conservative when it comes to when it will raise interest rates for and it's not likely that other central banks will make a major move to rein in the strength of their currencies before the Fed. Chairwoman Janet Yellen also warned of continuing slow growth domestically and internationally this month, an argument that would seem to support keeping the rates low for the foreseeable future.

My colleague, Stuart Burns, wrote this month that other strong economies such as the UK are not likely to join in raising central bank rates for at least a further 12 months even if the Fed raises its rates tomorrow. That will exacerbate the dollar’s strength, particularly against economic regions such as the European Union, which is still dependent on a quantitative easing program.

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The gold price fell to a two-month low on Friday, after data showed the US economy created more jobs than expected last month, bolstering the case for the Federal Reserve to raise interest rates around the middle of this year.

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Gold for April delivery, the most actively traded contract, was recently down 0.9% at $1,185.70 an ounce on the Comex division of the New York Mercantile Exchange. That is the lowest intraday level for the most active gold contract since Jan. 5.

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The Global Precious Metals MMI® fell to a value of 86 in March, succumbing to the across-the-board decline that has affected commodities this year. It was a decrease of 4.4% from 90 in February, a month in which gold and silver saw a sharp spike as a hedge against weaker currencies.

In February gold and silver came back down to Earth and the precious metals status quo was maintained.

The strong dollar and the resolution of Greece’s latest bailout talks have not helped the investment metals and gold, particularly, lost some its value as a result this month. Palladium is still in high demand for industrial and automotive uses but, unlike last month, it could not overcome the losses felt by its fellow PGMs.

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The Federal Reserve is widely expected to raise interest rates in the second half of the year but recent comments by Chairwoman Janet Yellen seem to have soothed the fears of investors who believed such a move could come as early as June. Yellen said the Fed would proceed cautiously during minutes recently released from its 2009 open committee meetings.

The Fed will meet again this month but most don’t believe any change in interest rates will happen earlier than the fourth quarter based on the meeting minutes.

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Gold’s relationship with silver and the stock market seems to have changed, writes Jamie Chisholm of the Financial Times.

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The mint ratio is the gold price divided by the silver price. Assuming supply stays reasonably stable, the mint has usually tended to rise when equities fall.

Yet, since mid-2011, the mint and the S&P 500 have rallied in tandem. There is no big jump in silver output to account for this. So does silver’s underperformance mean investors are skeptical about global demand?

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Precious metals miner Fresnillo PLC reported lower-than-expected full-year profit and revenue, hurt by falling gold and silver prices.

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Shares in the company fell as much 8.7%. A Reuters poll in January forecast a further decline in silver and gold prices in 2015, with gold expected to average around $1,234 an ounce and silver expected to fetch about $17.20 an ounce.

The company's pretax profit fell to $251.1 million in the year ended Dec. 31 from $418.7 million a year earlier.

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Gold and silver prices increased this week as Federal Reserve Chairwoman Janet Yellen continued to downplay the possibility of raising interest rates in the short term.

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In the world’s largest gold market, India, the presiding government refused industry demands for a decrease in the 10% gold import tax and, like the Fed, its rate will remain unchanged.

Gold prices edged higher Tuesday as a pullback in US equities and a weaker dollar lent support to the precious metal.

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The most actively traded contract, for April delivery, was recently up $3.50, or 0.3%, at $1,211.70 an ounce on the Comex division of the New York Mercantile Exchange.

Gold had been under pressure as a rally in US stocks lured away investors in recent months. The S&P 500 index and the Dow Jones Industrial Average both closed at fresh records on Monday, while the Nasdaq Composite rose above 5000 for the first time in nearly 15 years.

In other markets, palladium prices held near a five-month high as some investors wagered that China will mandate clear air-quality standards at an annual meeting of its legislature, which starts Thursday.

Gold inflows to India – the world’s heaviest consumer nation for some 2,000 years – will continue facing 10% import duty after Saturday’s new government budget disappointed jewelers hoping for a cut to 6% or even 2%.

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China’s central bank cut interest rates for the second time in 3 months over the weekend. The People’s Bank of China on Monday cut its benchmark lending rate to 5.35% and cut its deposit rate by the same 0.25 percentage points to 2.5% per year. World stock markets edged higher as the Yuan fell to a 2-year low against the US dollar and major commodities slipped a further 0.5% overall. New Purchasing Managers’ Index data today said activity in China’s manufacturing sector fell in February for the second month running.

India’s demand for gold was muted this week as buyers in the world’s top consumer of the metal held off purchases ahead of an expected cut in the gold import duty and a likely drop in local prices.

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Dealers hope to step up purchases if the import duty is lowered from a record 10% in Saturday’s federal budget, to meet demand from the upcoming wedding season and Akshay Tritiya, a major festival associated with gold-buying in April.