gold price

The commodities sector is suffering from lackluster prices, weak demand and, in many cases, overproduction but one sector is on the up, and that’s precious metals. Particularly gold and silver prices.

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According to the Financial Times, gold and silver have been among the best performing metals during 2016, powering a sharp rally in stock prices and helping miners ease concerns over their finances.

Gold Prices Take Off

Since the start of the year, gold has risen 27% while silver is up 46% giving more scope to the sector to return to dividend payments.

Source: Financial Times

Source: Financial Times

Many miners cut dividends after the price of gold, which peaked at about $1,900 in 2011, started to fall sharply in 2013. Although gold miners were not alone, they did take action early. Read more

Gold prices near multiyear highs

Gold prices are near multiyear highs. Source: MetalMiner analysis of @StockCharts.com data.

Gold prices surged last week, settling near multiyear highs. Two developments added fuel to gold’s bull market:

Weak GDP Data

For the second quarter, the U.S. gross domestic product grew at a seasonally adjusted annual rate of 1.2%, less than half the rate economists had predicted for the second quarter, casting doubt on the strength of the U.S. economic recovery. Gold benefited from safe-haven demand on a worsening economic outlook.

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Meanwhile, Federal Reserve officials said earlier last week that they could raise rates as early as September, but most analysts agree that their language isn’t hawkish enough to suggest an increase is forthcoming. Read more

Gold prices jumped this week, extending their best start to a year in more than 30 years, the Financial Times reports.

Two-Month Trial: Metal Buying Outlook

Encouraged by a sharp fall in the dollar and a doveish stance by the Federal Reserve, the metal climbed 1% to $1,262.77 an ounce as the dollar fell over 2% against the yen after the Bank of Japan decided not to further ease monetary policy.

Source: Financial Times

Source: Financial Times

Gold had continued a long decline last year from it’s peak in Q3, 2011, but along with all other metals it has rallied some 19% so far this year as investors have plowed back into gold-backed exchange traded funds, encouraged by a relaxation in the Fed’s stance on interest rates and, from that, the prospects for inflation in the medium term. Read more

After hitting an all-time low in December 2015 – dipping down into the 60s – the Global Precious Metals MMI rebounded a bit and is now hovering at 70 for the second consecutive month.

Free Sample Report: Our February Metal Buying Outlook

Of the three heaviest-weighted metal price points within this precious sub-index, gold bullion in both the U.S. in China, and silver ingot/bars in the U.S. all increased over the the last month, the primary drivers buoying the February MMI reading.

Global-Precious-Metals_Chart_February-2016_FNL

Gold Price Outlook

The longer-term outlook, though, may not be all that rosy for gold prices. “Despite talks of China and Russia buying gold, I still see main factors such as a strong [U.S.] dollar and a bear commodity market keeping a lid on gold prices,” Raul de Frutos, metals procurement specialist for MetalMiner, told me. “The price rally seen in January is way too small to consider that something is changing in the long-term picture.”

“I still have a neutral/bearish view on gold,” he concluded.

The Bigger Price Story: Palladium Downtrend

However, in a more interesting trend on the industrial metals side of the precious sector, two of the PGM price points we track on the MetalMiner IndX – for U.S. platinum and palladium bars – dropped 1.7% and 8.1% (!), respectively.

The U.S. palladium price has ticked up for a few days in a row since we took our MMI reading on Feb. 1, but it’s lost a whopping 26.3% in value since the beginning of November 2015.

So what’s going on in the palladium market?

The recent stock market selloff in China, which caused global tumult, is the real culprit hurting both palladium and platinum. A strong dollar is not helping matters, either.

Compare Prices With The January 2016 MMI Report

Strong car sales globally – in Europe, China and the U.S., with the latter two hitting all-time highs – did not correspond with stronger performances for platinum and palladium prices.

Despite analysts calling again for deficits in palladium and platinum markets this year, Raul has written that “it’s hard to imagine these two metals rising while China keeps driving everything down.”

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Gather round, folks, dead-cat bounces for all

Free Sample Report: Our January Metal Buying Outlook

And this month’s Global Precious Metals MMI was no exception – after hitting yet another all-time low of 68 last month, the sub-index bounced back up to 70 for our January reading.

Global-Precious-Metals_Chart_January-2016_FNL

As for the dead-cat bounce, the Aluminum MMI had what looked like one, my colleague Raul writes:

“Aluminum has declined more than 30% on the year-to-date. A 3% increase after such a price slump means nothing. Indeed, aluminum producers should be worried that prices are not able to make a decent rally from these low levels. That only means that investors are only interested in selling, not buying.”

The steel markets, too:

“Although steel prices took a break from their year-long fall in December, there are still many factors weighing down prices. It seems too early to bet on a recovery in prices. For corrosion-resistant steel buyers, the effects of the new import duties are certainly something to watch.”

And even the Copper MMI had a tiny one too, (stay tuned for that story, coming next week).

So, alongside the baby-sized Fed interest rate hike came a bit of a bounce for our precious metals price index. Welcome to the party.

The Platinum/Palladium Story

Putting aside gold and silver for now (global prices for which, on balance, fell for silver but rose for gold on the MetalMiner IndX), let’s focus again on the more industrial of the precious – the two PGMs we track.

As far as bigger end-use drivers go, the automotive markets have made most of the headlines lately. In China, car sales rose to the highest level ever, increasing in December by more than 23% from November 2014. That is the second consecutive month in which China’s passenger car sales grew by double digits. Here in the US, data from Ward’s Automotive Group shows 1.63 million vehicles were sold in December last year, making this the strongest month of 2015. In all of 2015, sales totaled 17.38 million, which exceeds the previous record high from 2000.

Producers like Johnson Matthey may have reason to look forward to 2016.

Compare Prices With The December MMI Report

Low gas prices, an improving labor market and low interest rates, “coupled with a solid U.S. economy, could also make 2016 a year of robust vehicle sales,” noted Commerzbank analysts recently. “This should boost platinum and palladium, which are used in auto catalysts; palladium in particular should profit because the U.S. market is gasoline-dominated.”

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After hitting a new all-time low last month, the monthly Global Precious Metals MMI® bounced back up a bit to catch its breath, and registered a value of 76 in September, an increase of 2.7% from 74 in August.

So What’s At Play? Gold Prices and Fed Hikes?

Yesterday, Reuters reported that spot gold prices lost more ground, after drifting downward the past several days.

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The precious metal was “hurt by a stronger dollar and as investors awaited a key US jobs report to gauge the timing of a Federal Reserve rate hike” – however, the global stock market [expletive]-show that has been rocking investor confidence lately may just be the only thing the Fed needs to go through with the hike.Global-Precious-Metals_Chart_September-2015_FNL

(Besides, ADP‘s private-sector jobs report, released this past Wednesday, betrays severe underperformance – fewer than 200,000 jobs have been added in 6 of the last 8 months, as mentioned here.)

Gold Drivers

The gold price points from each of the 4 global markets we track (the US, China, Japan and India) all rose over the past month, and along with platinum increases in Japan, China and the US, were the main drivers of the wholesale increase in the Global Precious Metals MMI®. That’s likely due to the fact that equities markets have been doing so poorly – no, heinously – from China to the Dow.

So, on the face of it, gold was a factor in the global precious index’s rise…but let’s turn attention to the historical lows of palladium.

“No. 2” PGM More of a Concern

Palladium, platinum’s cheaper and less scarce cousin, hit another bottom. The US price of palladium bars tracked on the MetalMiner IndX℠ clocked in at $600 per ounce (log in or join as a MetalMiner member at the bottom of this article to get full pricing to all the precious metals we track) – the lowest since November 2012.

As my colleague Jeff Yoders wrote recently, although US auto markets appear robust at the moment, there is uncertainty in China and correspondingly lower auto sales there. Chinese auto sales fell by 7.10% in July 2015 compared to July 2014, the largest fall since February 2013.

Free Download: Compare Price Trends With the August MMI Report

Which won’t bode too well for catalytic converter sales, hence for PGM demand – and prices.

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As the base metal and ferrous metal complexes we cover continue to take a bruising, the peripheral hits have struck our precious metals price index as well, with PGMs platinum and palladium leading the charge downward.

Free Sample Report: Our New Monthly Metal Price Outlook

In fact, the monthly Global Precious Metals MMI® registered a value of 74 in August, a decrease of 7.5% from 80 in July – thereby hitting a new all-time low. Every single metal price point for gold, silver, platinum and palladium dropped across all geographies we track, including the US, China, India and Japan.

precious metals price chart august 2015

This index has never seen the 70s before, and it’s not having a really nice day as they used to say in the ’70s (at least not for investors).

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Precious Metal in Focus: Palladium

According to my colleague Raul de Frutos, writing at the end of July, palladium prices fell as much as 14% during that month:

Palladium price since 2013

Palladium price since 2013. Graph: MetalMiner.

Ironically, palladium was the best performer among precious metals until just about a year ago when it started to fall, Raul wrote. So far, year-to-date, palladium has tanked 32% with the most precipitous drop showing over the past two months. So what’s been driving the price meltdown?

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Due to its role in gas-powered car engines, palladium is more exposed to the Chinese and US automotive markets than to European markets. The slowdown of the Chinese automotive market over the past few months may be Public Enemy No. 1 as far as a driver of palladium’s price decline.

Free Download: Compare With the July MMI Report

Just a couple days ago, BMW and Toyota Motor Corp. publicly voiced their concerns over China’s car market, saying that the days of double-digit growth are likely over, as reported by Bloomberg. Both companies are concerned about their profits getting dinged, and are therefore cutting back production based on low demand numbers – BMW, for example, said earlier this week that it had cut production in China by 16,000 cars so far this year.

And Platinum?

South African mines, producers of 70% of the world’s supply, have been reporting production levels for platinum above those during the 5-month strike in 2014, as Raul has pointed out in his previous coverage. Combined with the lollygagging of the Chinese auto sector, looks as though platinum prices may not see a huge rebound for some time as well.

Wild Card

Remember, the strength of the US dollar plays a big role in the movement of this index. The dollar-to-euro exchange rate has been listed as the No. 1 driver of all the base metals in our latest, newly revamped monthly buying outlook, and it’s safe to say that’s no exception for gold and silver movement – when the dollar is strong, investors tend to leave gold behind as a safe haven a little more often.

The Global Precious Metals MMI® collects and weights 14 global precious metal price points to provide a unique view into precious metal price trends over a 30-day period. For more information on the Global Precious Metals MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.

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It’s safe to say that the Greece and China crises that have hit the global economy are going to be the biggest issues to watch as far as the precious metals markets – and prices – are concerned.

Over the past month, the monthly Global Precious Metals MMI® fell 4.8% from 84 in June, and it may have further to fall before July is out.

Global-Precious-Metals_Chart_July-2015_FNL

* Read what we said in last month’s analysis.

China’s Star is Falling

One may think that the Chinese equity market crash may help investors flock to gold as a safe haven – but not so fast.

A leading precious metals consultancy called Metals Focus, which interestingly, according to this article, has booted GFMS as the primary supplier of statistical data to the World Gold Council, points out that due to China being a gambling culture, “reckons there is more the likelihood that weak equity prices may end up adversely affecting physical gold demand. Losses generated by the impact of the stock market crash may well hit jewellery and gold artefact purchases, while the scale of the fall is such that potential investors nursing big losses may well not have the liquidity to move back into gold.”

Which would likely mean that gold prices won’t see a whole lot of support. As my colleague Raul de Frutos has noted around the office water-cooler recently, “gold’s safe haven thesis” is not really playing out, probably because of a strong dollar.

Saturday Night at the Palladium: Also Down

The palladium prices from all three global markets we track on our IndX (the US, China and Japan) fell by double digits over the past month. Platinum prices also haven’t looked so hot, looking at 6-year lows, mainly driven by weakness across other commodities and industrial metals.

Palladium spot price since 2012

Palladium spot price since 2012. Source: MetalMiner.

So what to watch in palladium and PGM markets in general?

  • Keep an eye on that US dollar – a strong dollar means a weak South African rand, and that means good news for SA producers to boost supply
  • Investment activity – ETF and other inflow/outflows
  • Next China PMI -> What that means for China automotive demand -> What that means for China auto production

Actual Gold, Silver, Platinum, Palladium Prices

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Silver prices in Japan, India and the US all rose over the past month, as did gold prices in the same regions. Silver and gold prices in China, however, fell ever so slightly. These inputs, as well as platinum and palladium prices showing mixed movement, resulted in MetalMiner’s monthly Global Precious Metals MMI® registering a value of 84 in June, holding steady at May’s level.

precious metal price index chart

Compare with last month’s report: download it free here.

The real stories that concern us, however, may reside in the PGM markets.

2015 GFMS Platinum & Palladium Survey SAYS:

Thomson Reuters recently released its GFMS Platinum & Palladium Survey 2015, and in it, noted that the platinum market to be in a deep deficit last year “(prior to inventory movements) of 1.02 million ounces, singularly owing to major strike-related production stoppages in South Africa.” The 2014 deficit comes on the heels of surplus in 7 of the last 8 years; the deficit is expected to continue.

Meanwhile, palladium has been a market in deficit since 2007. The GFMS team estimates “the palladium market deficit last year at 1.58 million ounces, representing the most severe market imbalance for more than a decade.”

GFMS Platinum, Palladium Price Forecast

According to the survey, the average platinum price is forecast to fall by 16% year-on-year, averaging $1,170/oz, about 5% higher than May’s closing price on the MetalMiner IndX. Analysts indicate that this suggests a closing of platinum’s discount to gold. The average palladium price forecast is broadly flat year-on-year at $800/oz, not too much higher than current prices.

William Tankard, research director of mining at Thomson Reuters, is quoted as saying, “It appears to us that forward buying programs by the automotive sector are developing increasing levels of flexibility for these consumers to purchase metal when they want to, rather than need to; the sector is becoming increasingly price-sensitive. Without enduring production cuts to be achieved, by permanently closing high-cost mines, the platinum market is expected to return to surplus next year. Of course, it’s a huge challenge as a producer to make that call, incur restructuring costs and permanently close capacity, if you believe the price will recover in the short- to medium-term.”

How Does That Compare to MetalMiner’s Outlook?

It roughly matches what our lead forecasting analyst, Raul de Frutos, has written recently; in short: “Recent weakness in the dollar is giving a boost to precious metals. However, these price movements have been quite shy so far. It still makes sense to be long-term bullish on the dollar and bearish on precious metals.”

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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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