Gold

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This morning in metals news, growth in China’s steel industry has slowed down significantly, U.S. steel production was up 8.6% year-over-year and a Russian firm launches a new copper and gold mine near the Chinese border.

Chinese Steel PMI Falls to 6-Month Low

The Chinese steel Purchasing Managers’ Index (PMI) fell to a 6-month low this month as the government attempts to curb pollution, according to a Reuters report.

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This month, the PMI dropped to 52.3 from 53.7.

U.S. Steel Production Up 8.6%

Through the month of September, U.S. steel production was up 8.6% year-over-year, according to a report by the Northwest Indiana Times.

According to the report, citing stats from the World Steel Association, steel output rose by 5.6% internationally in September compared to September 2016.

Russia’s Norilsk Opens New Mine Near Chinese Border

The Russian firm Norilsk Nickel has launched a new copper, iron and gold mine near the Chinese border, according to Reuters.

The project, situated about 250 miles by rail from the border, will send iron ore exports to China.

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Chinese copper demand continues to be strong. According to the report, Shanghai copper futures have surged 18% this year.

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Before we head into the weekend, let’s take a look back at the week that was.

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  • Holidays in India mean an uptick in gold buying — our Sohrab Darabshaw covered India’s holiday gold surge.
  • The fourth round of renegotiation talks focused on the North American Free Trade Agreement (NAFTA) concluded earlier this week. We covered the latest round of talks, which by all accounts have the three negotiating teams at an impasse.
  • As the fallout continues from Kobe Steel’s quality data falsification scandal, our Stuart Burns wrote about what exactly might have gone wrong at Japan’s third-largest steelmaker.
  • The World Steel Association’s Short Range Outlook came out this week, predicting solid, albeit moderated growth for the global steel market.
  • Precious and base metals have been behaving similarly, our Irene Martinez Canorea wrote this week.
  • The U.S. International Trade Commission launched a new Section 337 probe related to automation systems.
  • The value of the U.S. dollar has a significant impact on the fortunes of a number of metals, our Stuart Burns explained.
  • And how about palladium? Burns also touched on the rise of the platinum group metal and its leapfrogging of platinum (for the time being).
  • It’s third-quarter earnings report time. Alcoa and Nucor were among the latest companies to announce their earnings for the latest quarter.

Free Download: The October 2017 MMI Report

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This morning in metals news, Japanese carmakers tested the safety of Kobe Steel products, palladium outshines gold and the global nickel deficit widened in August.

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Kobe Steel Materials Pass Safety Checks

Toyota, Honda and Mazda gave Kobe Steel, Japan’s embattled third-largest steelmaker, a touch of good news Thursday by saying its products are safe, despite the recent data falsification scandal.

According to a report in The New York Times, the products fell short of advertised standards, but met with regulators’ standards (as well as those of the carmakers).

Palladium Continues Charmed Run

The palladium price recently eclipsed that of platinum for the first time since 2001 — and the metal’s rise has people taking notice.

The upward trend for palladium has even caught the eye of the gold industry, according to the Financial Times.

Our Stuart Burns covered palladium’s rise in his post earlier this morning.

Nickel Market Showed 6,700-Ton Deficit in August

The nickel market deficit deficit rose to 6,700 tons in August, according to data released by the International Nickel Study Institute.

Free Download: The October 2017 MMI Report

Global production was 176,800 tons, with demand at 183,500 tons.

Precious metals dynamics have looked similar to base metals during these last couple of months.

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The four precious metals (gold, silver, palladium and platinum) rallied since July, and peaked in September. In September, precious metals saw a price pullback, as did the base metals.

Gold spot prices (see graph below) reflect this movement perfectly.

After the price retracement in September, gold spot prices increased again. The gold rally that started at the beginning of 2017 appears set to continue. More movements to the upside could occur for the rest of the year.

Source: MetalMiner analysis of FastMarkets

Silver prices, however, have traded sideways, showing less of a bullish sentiment than gold. However, silver has shown the same price movements (in different price ranges) from July to October (see chart below).

Does this set the foundation for a new long-term uptrend?

Source: MetalMiner analysis of FastMarkets

As Fouad Egbaria noted: “As of Oct. 1, palladium closed higher than platinum. The last time that happened? Sixteen years ago.” Palladium prices rallied, as did gold prices, while platinum prices traded sideways, similar to silver.

Palladium prices. Source: MetalMiner analysis of FastMarkets

Platinum prices. Source: MetalMiner analysis of FastMarkets

However, both palladium and platinum showed the same price pattern since July. Those price movements may point toward an ongoing bullish market.

As reported by Reuters, the commodities outlook for Q4 looks bullish. MetalMiner also remains bullish on both commodities and base metals, and expects more movements to the upside while the U.S. dollar remains weak.

Free Download: The October 2017 MMI Report

A complete analysis of commodities and base metals for 2018 is published in our free Annual Outlook report. 

If you were in India right now, someone is bound to tell you that it’s that time of the year.

He or she would be referring to the almost-three months of festivals and wedding season, which India sees starting from sometime late August and continues until early September. More specifically, just under a week remains before that “mother of all Indian festivals” — Diwali, the fest of lights.

All this also means an uptick in shopping, but, more specifically, gold shopping.

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Indians love their gold, and any excuse is enough to buy some more of the yellow metal. But Dusshera (a major Hindu festival preceding Diwali) and Diwali are special occasions, reserved for buying as much gold as possible. All of this makes India the second-largest gold-consuming market in the world.

This year, there was a slight damper on Indians’ demand for gold.

As part of the new tax reforms, the government included jewelers in the Prevention of Money-Laundering Act (PMLA) in August. This meant a compliance requirement on part of the buyer for any purchase above US $760 (Rs 50,000), including providing their income tax identity.

Incidentally, gold and real estate are the two investment opportunities that were often misused by hoarders of cash or those dealing in the black economy.

For some time, then, there were no “high value” deals as jewelers across the country, their associations and potential customers protested.

So, while September import figures of gold (in the month of Dusshera) were robust, they could have been even higher if the PMLA was not in effect, some associations claimed.

According to a report put out by news agency Reuters, India imported 48 metric tons, equivalent to $2 billion at today’s prices, in September. But since Dusshera fell in September instead of October this year (it follows the lunar calendar), the import figures compared to September 2016 were up, though on a month-on-month basis, it was lower, because of the uptake being down due to the PMLA.

But a decision by the government a few days back has brought back the cheer in the lives of gold consumers in India.

The PMLA has been put on hold for now, which means people can go ahead and buy gold without providing any of the previously required documents. Jewelers are hopeful the gold-buying spree, normally seen during these festive months, will at least revive in October, especially around Diwali. Imports are expected to go up to about 70 metric tons per month.

Just to give readers an idea of Indians’ love of gold, Indian households have the largest private gold holdings in the world, standing at an estimated 24,000 metric tons. That figure reportedly surpasses the combined official gold reserves of the United States, Germany, Italy, France, China and Russia.

This year, even the Indian government wants to take advantage of the festive gold bonanza.

Showing impeccable timing, it has announced the launch of new sovereign gold bond schemes. Never before has such a scheme been announced around festival time.

Free Download: The October 2017 MMI Report

The bonds issue opened Oct. 9 and remain so until Dec. 27, covering the festivals of Diwali and Christmas.

The government has also made important changes to attract high-value investors, raising the annual investment limit per person from 500 grams to 4 kilograms. For trusts and similar entities, the limit was raised to 20 kilograms. This higher limit will make the scheme attractive for high-net-worth individuals who had not participated in earlier schemes, as they found the 500-gram limit to be too low.

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Here’s What Happened

  • MetalMiner’s Global Precious MMI, tracking a basket of precious metals from across the globe, cooled off considerably after a sharp rise last month. For October, the sub-index dropped 3.4% to hit 86. That’s nearly back to the August 2017 level.
  • Palladium held steady for a month, but still continues a measurable march upwards. The platinum group metal held above the $900 per ounce level for the second straight month.
  • Platinum did lose a bit of its luster, however, falling back toward the $900 per ounce level and receding from its most recent high of March 2017 (when it landed above $1,000 per ounce). What does that mean? Something quite historic (see the section below)
  • After breaking and holding above the $1,300 per ounce threshold at the beginning of September for the first time since October 2016, the U.S. gold price retraced its steps as well, diving back under that level for the beginning of October.

What’s Going On in the Background?

  • We have quite the record to report. ICYMI, my colleague Fouad Egbaria noted recently that the platinum-palladium relationship reached a milestone: “As of Oct. 1, palladium closed higher than platinum. The last time that happened? Sixteen years ago.”
  • According to a research note from commodities broker SP Angel quoted within a report by Kitco News, “Palladium is benefitting from its inclusion in catalytic converters in gasoline-powered vehicles, which is expecting robust growth from the shift from diesel engines following the 2015 Volkswagen emissions-rigging scandal, and hybrid electric vehicle demand.”

What Metal Buyers Should Look Out For

  • Other analysts have thoughts on platinum/palladium outlook as well. “In the short term, we think platinum is undervalued for a whole host of reasons. Therefore, we think there is scope for platinum to move back to a slight premium in the short to medium term,” Robin Bhar, metals analyst at Societe Generale, was quoted as saying in the Kitco News report. “We don’t see a sustainable premium of palladium over platinum…until about 2020 or 2021.”
  • Overall, however, investors have been seeing nice returns, according to International Banker. The article notes a Reuters poll “of 26 analysts and traders conducted in July, [in which] the average palladium price for 2017 [was] being predicted at $811 per ounce for this year, which is 5 percent above the previous poll conducted in April…[and] the highest annual average price on record, going back three decades.” Well, now we’ve broken $900 per ounce.
  • That makes Standard Chartered rosy as well. “We remain constructive on palladium’s outlook,” according to the bank’s analyst, Suki Cooper. “Not only is the market set to deliver a deficit this year, but it looks set to be undersupplied over the coming years.”

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This morning in metals, the U.S. dollar index is up, while gold and silver prices are on a downward trend and oil prices dip slightly from Monday’s high. In addition, there’s a very intriguing potential source of renewable energy on the horizon.

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A drop in U.S. oil inventories has helped oil prices stay more or less steady, Reuters reports. The biggest factor supporting oil prices has been Turkey’s threat to cut off oil exports from Kurdistan, and this past Monday, the price of oil came close to $60/barrel for the first time since June 2015.

U.S. Dollar Index Rises, Precious Metals Fall

Gold and silver prices fell to four-week lows as the U.S. dollar index climbed to a five-week high, fueled by the expectation that the Feds will hike up interest rates again, Reuters reports.

As Stuart Burns wrote earlier this morning, “Trump’s United Nations speech threatening annihilation on North Korea failed to support the gold price, as investors took a cue from central bank announcements that the Fed intends to start unwinding its multi-trillion dollar balance sheet in October.”

A New Renewable Energy Source?

Could 70% of U.S. energy come from plain old H2O? According to new research, energy from water evaporation could provide a staggering 325 gigawatts of power. Read more

Investors sometimes have short attention spans.

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

Just a month ago, worried by the escalating tension between the U.S. and North Korea, the gold price was rising, hitting its highest level in over a year at $1,358 an ounce as the dollar weakened and tensions ratcheted up.

However, Trump’s United Nations speech threatening annihilation on North Korea failed to support the gold price, as investors took a cue from central bank announcements that the Fed intends to start unwinding its multi-trillion dollar balance sheet in October.

The Financial Times reports the prospects of higher interest rates make gold less attractive, since the metal provides no yield.

After peaking in early September, gold remains up 13% on the year. Silver prices are up 6% in the year-to-date. The Fed seems set on a rate hike by December, followed by probably two more next year.

Yet, the gold price is merely the most visible of many undercurrents caused by the Fed’s gradual withdrawal of liquidity as it unwinds its eight-year stimulus program.

Little attention has been given of the impact this gradual draining of liquidity will have on emerging markets.

Already, a few alarm bells are beginning to sound.

Read more

Hurricane Harvey left a trail of destruction throughout southeastern Texas and southwestern Louisiana. Those impacted regions have a long road to recovery.

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

But not long after Harvey, Hurricane Irma made landfall in the continental United States, compounding the havoc wreaked by Harvey.

According to Dr. Joel N. Myers, founder, president and chairman of AccuWeather, Irma will prove to have been the worst hurricane to hit Florida since Hurricane Andrew in 1992.

Millions of Floridians lost power because of Irma. According to the Department of Energy, there were 4,864,148 customer outages in Florida, or 49% of the state, as of Tuesday morning. That figure is down from the 6,117,024 reported customer outages as of Monday afternoon — or a whopping 59% of the state.

The storms, one after the other, marked the first time in 166 years of weather records that two Atlantic Category 4 hurricanes made landfall in the United States in the same year.

Like Harvey, the extent of Irma’s damages will become clear over time, but there will certainly be significant damages to homes and other properties, and even vehicles. Enki Research estimated damages may reach $49 billion.

Read more

Gold prices rallied during the first three months of 2017 on the heels of the presidential election and a weaker U.S. dollar.

However, gold prices showed some weakness during March and have traded sideways since then, with an average price of $1,250/ounce.

Source: MetalMiner analysis of FastMarkets

Gold prices have not been able to surpass the resistance level of $1,300/ounce, which would ensure the metal retain its bull market status.

In July, however, gold prices increased together with other base metals and commodities.

The U.S. Dollar

The U.S. Dollar weakness in 2017. Source: MetalMiner analysis of TradingEconomics

Gold prices received a lift from a weaker U.S. dollar.

A bearish U.S. dollar contributes to rising gold prices. The U.S. dollar is currently at its lowest level in a year and is close to its support level.

Source: MetalMiner analysis of TradingEconomics

The U.S. dollar could rebound from this support level and recover — or it may continue its sharp downtrend and show weakness. Gold prices could remain supported by a weaker dollar.

Stock markets

The S&P 500 has continued its uptrend since 2016. The index has reached an all-time high. The rising stock market may have kept a lid on gold prices this year.

However, the increase in stock markets has shown low volatility.

Low volatility periods (calm periods) are commonly followed by high volatility periods (storm periods).

We may be in the calm before the storm.

S&P 500. Source: MetalMiner analysis of TradingEconomics

What this means for metal buyers

Gold prices have lost steam and have traded sideways since March (with the exception of July’s bullish move).

A stronger U.S. dollar could drive gold prices down again. The opposite also remains a real possibility.

Buying organizations may want to watch the U.S. dollar closely.