Gold

As gold continues to flirt with $1,300 an ounce, some major investors are making opposite bets on the investment metal in the SPDR Gold ETF.

Paulson or Soros Will Be Wrong About Gold

Gold bull John Paulson slashed his bets on bullion while billionaire investor George Soros and other big funds returned to the metal for the first time in years, filings showed on Monday, as prices staged their biggest rally in nearly 30 years.

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New York-based hedge fund Paulson & Co., one of the world’s most influential gold investors, slashed its investment in SPDR Gold Trust, the world’s biggest gold exchanged-traded fund (ETF), by 17% to 4.8 million shares, Securities and Exchange Commission filings showed on Monday.

China’s Largest Private Steelmaker: We Need Even More Gov’t Support

Jiangsu Shagang, the listed unit of China’s biggest privately-owned steel producer, said on Monday the Chinese government should provide steelmakers with even more support in their efforts to export products and shift capacity overseas. China’s massive steel sector has come under growing international scrutiny, with foreign steelmakers accusing the country’s firms of flooding the global market with cheap, subsidized steel and driving them out of business.

Gold prices extended their best start to a year in more than 30 years this month, jumping 5.1% to 82 amid a broad precious metals rally.

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Silver has mostly caught up to its investment metal cousin, too, thanks to its dual use as an industrial and precious metal. Silver miners are seeing their stock prices increase as supply has been constrained by recent mine shutdowns.

Global-Precious-Metals_Chart_May-2016_FNLAs with most of the metals we track, China is the biggest consumer and biggest producer of gold. So, the news that China’s central bank and customs service will allow companies that have “frequent imports and exports” of gold and gold products to apply for a single permit that can be used in as many as 12 shipments was welcome for both producers and consumers. The trial to simplify the rules takes effect June 1 and applies to Beijing, Shanghai, Guangzhou, Qingdao, Nanjing and Shenzhen, the bank said in a statement.

Aside from loosened regulations, the investment metals are sitting in a good, fundamental place. The safe haven status of both gold and silver continues to help their prices as the Federal Reserve again showed no stomach for interest rate increases this month.

As my colleague, Raul de Frutos, recently wrote, this has led to the weakest U.S. dollar in 15 months and sent investors flocking to silver, gold and even the platinum group metals. That’s right, 15-month high for gold, 15-month low for the U.S. dollar index. The correlation, gold-to-dollar, is way more reliable that any physical demand indicator of gold.

It seems as if the Fed’s dovishness is catching on globally, too. Japan was expected to implement a fresh round of stimulus to weaken the yen to combat low inflation. However The Bank of Japan kept interest rates unchanged this month.

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There is little sign that investors will stop flocking to safe havens and with strong consumer demand in automotive and electronics it’s difficult to see an end to this bull run.

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Chinese regulators remain adamant about keeping commodities from becoming speculative casinos there and Glencore is attempting to sell one of its biggest gold mines while prices are still high.

Chinese Regulators Tamp Down Speculation

Chinese regulators appear to have successfully popped a mini-bubble for now in steel and other commodity futures, scaring off speculators who piled in last month to drive steep gains in the prices of raw materials from coal to cotton.

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China has vowed that it won’t allow its commodity futures markets to become a hot-bed for speculators, fearing that price movements not based on fundamentals could skew investment decisions and hamper efforts to rein in overcapacity, Reuters reported.

Glencore Looks to Sell Mine

Mining company Glencore  is considering selling its Vasilkovskoye gold mine in Kazakhstan, sources close to the deal said on Tuesday, confirming an earlier report in the Financial Times. The sources said the assets were worth more than $2 billion. “A sale is one of the options,” one source said, speaking on condition of anonymity.

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The sale of Glencore’s 70% stake in the mine would help the company pare down its near-$26 billion net debt load.

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

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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

In March and February, gold prices — whether U.S., Indian or Chinese — were the standout performers, with some even nearly doubling in value as investors stocked up on the hard currency as a haven from a falling U.S. dollar and other global economic turmoil.

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But that’s not the case this month. Gold lost value in all the markets we track, a predictable pullback from its runaway performance during most of the first quarter. The precious metal that’s pacing the globe and keeping our sub-index positive is silver, helping the sub-index achieve a 1.2% increase.

Global-Precious-Metals_Chart_April-2016_FNL

Sure, the platinum group metals were predictably positive, too, but silver’s unique position as both an investment and industrial metal allowed it to gain in all the markets we track and its future potential is stronger as safe haven status doesn’t make up such a huge part of its value as with its cousin, gold.

Secondary Mining, Primary Industrial Usage

Silver is mined alongside just about every industrial metal in the world and selling it has been padding the profits of base metal miners during the first quarter. U.S.-based primary silver producer Coeur Mining reported Q1 production of 3.4 million ounces of silver and slightly more than 78,000 ounces of gold. That was in line with expectations, as the company transitions to lower-tonnage, higher-grade, higher-margin underground operations from two ore sources, Guadalupe and Independencia in Mexico.

The electronics uses of silver are pushing miners to bet their future on the metal as its still the world’s best conductor of electrical current and heat. Electronics in automobiles such as Tesla Motorsnew Model 3 “affordable” electric car will require more silver than any automobile on the road today. And electronics are already invading the comfort of our conveyances more than ever before.

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When you add electrical transmission and use in renewables to silver’s demand side equation it’s easy to understand why its global prices could easily keep rising independently of its performance as an investment.

What This Means for Metal Buyers

Continue to expect silver and PGMs to experience strong demand independent of investment potential. Gold could still gain back its losses but its prospects, long-term, are not as strong.

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The price rally we’ve been cautiously documenting continued this week as cold-rolled coil took off and gained separation from its sister steel product, hot-rolled coil.

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CRC is feeling the burn from massive 265% import duties on Chinese imports. You think we got our point across with those tariffs? You listening, China?

Cold-rolled coil is gaining some separation from hot-rolled coil.

Cold-rolled coil is gaining some separation from hot-rolled coil. Source: MetalMiner.

CRC may have been the big winner in industrial metals this week, but it’s not the only winner. Silver is making strides and catching up to gold. Unlike with gold, it’s not investors buoying it, either, it’s good ol’ industrial usage.

Hi-Ho, Silver!

Silver’s in your cell phone, your car and lots of other manufacturing applications. Forget to turn off your plasma television? Just push a button and silver’s there to get that job done for you.

Reuters_silver_971_032316

Silver’s rocky road is finally pointing up. Source: Reuters.

Silver and gold both have strong investor appeal right now and look like they’ll keep rising so long as that sentiment exists.

DUC, DUC Goosing Oil Prices

Okay, sure, higher oil prices helped silver gain some traction this week, too, but that doesn’t make silver any less of a workhorse. Higher oil prices helped all the metals this week. With prices now above the $40 per barrel psychological threshold, U.S. drillers have opened their drilled but uncomplete (DUC) wells and are starting to see profits from these dormant assets.

With DUCs pumping out oil here in the U.S., oil prices likely won’t be able to rise much further, but could still keep their recent gains. As we’ve said before, global oil supply and demand is a complicated game with many levers of power, but U.S. production is a big one.

Chinese Steel Overproduction Continues

Despite the good sentiment from rising prices, the overproduction of steel still looms over suppliers and manufacturers. We visited Steel Markets North America last week, and witnessed a talk by Terance Ko, of Hatch Associates.

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There’s not much hope of China decreasing steel overproduction any time soon. The 100-150 million planned reduction, Ko said, likely won’t make enough of a dent in current overproduction to be felt anytime soon. Maybe tariffs will have to work where economics doesn’t.

During the first six weeks of 2016, gold was the market’s rock star. The yellow metal rose more than 20% from its lows, hitting a 1-year high.

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Such a surge was caused by the weakening U.S. dollar, a selloff in oil prices and yet another in global stock markets. Over that period, gold significantly outperformed silver thanks to its safe-haven appeal.

Gold-Silver ratio peaks in March amid global markets and industrial metals recovery

The gold-to-silver ratio peaks in March amid global stock market and industrial metals recovery. Source: MetalMiner analysis of @StockCharts.com data.

But since mid-February there were some factors that made silver outshine gold.

Oil Price and Base Metals Rebound

Oil Prices recovery since mid- February_opt

Source: MetalMiner analysis of @StockCharts.com data.

Oil prices made a nice comeback over the past five weeks. This recovery in oil prices gave some relief to market participants who were worried by their continuous fall.

Industrial metals ETF (DBB) rising

Industrial metals ETF (DBB) rising. Source: MetalMiner analysis of @StockCharts.com data.

These developments also helped push industrial metals prices higher. Unlike gold, silver has industrial applications, so the recent strength in the base metal complex helped silver outperform gold over the past few weeks.

Stock Markets Recover (For Now)

S&P 500 index bouncing off lows since February

S&P 500 index has been bouncing off its lows since February. Source: MetalMiner analysis of @StockCharts.com data.

Thanks, in part, to healthier oil prices, global markets have been gaining since mid-February. That allowed money to rotate out of safe-haven assets like gold and bonds. Silver was less impacted than gold in this way, also causing silver to outperform it.

Will Silver Continue to Gain Against Gold?

That will likely depend on how far can the recent rally in the base metal complex and stock markets extends. However, both markets seem prone to a pull back which will likely cause silver prices to come down.

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Also, buyers should watch the dollar’s movements. A stronger dollar would hurt both precious metals.

Two major exchanges have teamed up to offer gold and other precious metals contracts in China and stubbornly low copper prices have claimed another

New Chinese Gold Contracts Coming

Hong Kong Exchanges and Clearing Limited and the Shanghai Gold Exchange have teamed up to possibly develop precious metals contracts and boost links between markets, the bourses said on Wednesday.

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The exchanges signed a memorandum of understanding “to consider various potential areas of mutual interest, including joint development of precious metals products and cross-market connectivity,” the companies said in a statement.

The move comes as China is close to establishing a yuan/renminbi price fix on gold, which could give buyers in Asia more power over the bullion trade.

Chile Copper Exploration Forum Canceled

An exploration forum slated to take place next month in Chile as part of one of the copper industry’s biggest annual events has been canceled. The continued fall in the copper price has hurt demand, organizers said on Wednesday.

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The Exploration Forum, which would have been in its ninth year, was due to take place in Santiago on April 4. It has become the traditional opener to the CESCO/CRU week, a copper-focused event that draws attendees from across the global industry.

A major U.S. miner, Newmont Mining, is selling its stake in an Australian gold miner. Increases in interest rates might happen, after all, at this week’s Federal Reserve meetings.

Newmont to Sell Regis Stake

U.S. gold giant Newmont Mining said it is selling its stake in Australian miner Regis Resources to institutional investors for $182 million.

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Newmont, which is taking advantage of a sustained rally in the price of gold and the rising value of Australian gold miners, said it would sell its entire 19.45% interest, or 97.2 million shares.

Interest Rate Hikes Back?

Interest rate hikes at the Federal Reserve‘s March meeting tomorrow and Wednesday are, reportedly, back from the dead.

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This was unexpected as most believed the Fed would hold rates after increasing them at its last meeting.

This week, tin hit an 11-month high. The price of Brent crude oil jumped above $40 per barrel for the first time this year. Even copper has seen its price increase steadily.

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Is this rally really a sustainable for commodities? We operate on the principle of trust but verify here at MetalMiner. And, as my colleague Stuart Burns cautioned us about China’s copper imports, there’s still little to suggest that the purchasing spree there is really about new demand.

Do copper imports matter if they're not being used? Source: Adobe Stock/Hedgehog.

Do copper imports matter if they’re not being used? Source: Adobe Stock/Hedgehog.

We’re not the only price rally cynics out there, either. Goldman Sachs isn’t buying it. In a note to investors written by Global Head of Commodities Research Jeffrey Currie, the investment bank cautioned that current market views on “reflation, realignment and re-levering have driven a premature surge in commodity prices that we believe is not sustainable.”

Avoid those unsustainable surges. This week, we noted that the low-price environment has decimated resource-heavy economies such as Africa’s and Brazil. The European Central Bank threw its hands up and cut its principal interest rate to zero, too.

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The price increases in oil, iron ore, tin and copper are great news for struggling exporters, but, let’s keep our heads here. There’s still a lot of economic pain out there.