Gold

A couple of developments made precious metals soar in the first half of the year.

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A falling dollar was the first development that helped gold, silver and platinum group metals soar. Second, the U.K.’s Brexit referendum. Since their January’s lows, gold, silver, platinum, and palladium rose 30%, 50%, 44%, and 50% respectively.

Yes, supply/demand fundamentals differ from one metal to another. Gold has a big role in jewelry and investments. Silver has more of an industrial role, while automotive catalyst demand makes up about 40% and 75% of platinum and palladium demand. These distinct elements can cause these metals to behave differently from time to time but, overall, there are more two more critical drivers to pay attention to. The dollar and economic fears:

Gold (in yellow) vs Platinum (in Blue). Source: MetalMiner analysis of stockcharts.com data

Gold (in yellow) vs platinum (in Blue). Source: MetalMiner analysis of stockcharts.com data.

  • Back in December the U.S. dollar peaked. Weakness in the currency lasted until May and boosted the price of precious metals.
  • In May, the dollar bottomed out and started to climb, having a depressing effect on precious metals. But the effect didn’t last too long as toward the end of June, the U.K.’s Brexit referendum took place. The economic uncertainty pushed safe haven assets higher.
  • Finally, during the third quarter, the U.S. Dollar has been pretty neutral as investors wait for the Federal Reserve to take steps on raising rates at the same time as economic fears ease. The result? Investors lack reasons to push prices higher and consequently prices are retracting.

What This Mean For Metal Buyers

Unless the upcoming monetary policies cause the dollar to weaken, or new economic fears bring back the appeal for these safe haven assets, it might take a little while until we see precious metals rising like we saw in the first half.

Welcome back to the MetalMiner week-in-review! This week we’ve got in-depth reporting on China and market economy status, India getting tough on aluminum imports and Canada… well, you’ll see what happened in Canada.

We Know Gold Prices Have Gone Up… Butt This is Ridiculous

The theft of about $140,000 worth of gold ($180,000 in Canadian dollars) from the Royal Canadian Mint, was supposedly an inside job… in more ways than one.

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After a trial that concluded in Ottawa on Tuesday, Leston Lawrence, a 35-year-old employee of the government mint in Ottawa, stood accused of foiling the facility’s high security and smuggling out 18 7.4-ounce pucks — this is Canada, after all — worth about $6,800 each. He sold most of the pucks, cooled into the size of a purity testing dipper used at the mint, to an Ottawa Gold Sellers retail store at a nearby mall. The accused criminal mastermind also had four more of the pucks in a safe deposit box.

AdobeStock_John_Takai_security_gold

“Go ahead, scan me with the wand. Nothing to see here.” Source: Adobe Stock/John Takai.

The question the Royal Canadian Mounted Police, or the Mint, couldn’t figure out is how he got past the state-of-the-art security that featured full-body metal detectors and secondary screenings with a wand for anyone that tripped the first scan?

Before Lawrence was fired from the Mint and arrested in 2015, investigators also found a tub of Vaseline in his locker. While the wand scanners can pick up even small pieces of metal in a person’s clothes, security officials from the Mint said they probably would not detect dipper-sized gold pucks that were forced between someone’s buttocks using the vaseline.

Ewww, Canada. Read more

India will complete the second phase of its mining auctions later this month, after the first round last year received a lukewarm response. Going under the hammer will be gold, diamond and iron ore mines.

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Mines in five provinces — Karnataka, Andhra Pradesh, Madhya Pradesh, Rajasthan and Jharkhand — will be auctioned. This time, there are 14 iron ore mines, 12 blocks of limestone and one block each of gold, diamond and copper. While some analysts have predicted a better response than last time to the iron ore mining auction, the limestone blocks may not see much action because of the cement market slump.

Round One

In the first round of the auction, the states offered 47 mines bearing minerals such as gold, iron ore, bauxite and limestone.

They were able to auction seven mines in that phase, earning the government billions of dollars over the next 50 years. However, 17 blocks were not sold due to an insufficient number of initial bids on account of factors such as quantity and grade of ore and low quality of the mineralization studies, among other reasons.

The first round also came under scrutiny when the comptroller and auditor general of India (CAG), a body that audits all government expenditures, passed certain adverse observations. It said in a report tabled in the Indian Parliament that competition may have been restricted in the auction of 11 coal blocks on account of multiple bids by corporate groups made through joint ventures or subsidiaries.

What Does This Mean For India’s Steel Exports?

The iron ore auction comes at a time when the Indian government is contemplating a relaxation of export duties on iron ore. This has led to protests from the domestic steel industry.

In a representation to the steel ministry, the Indian Steel Association asked the government to continue with a 30% export duty on all grades of ore, to preserve natural resources for domestic use.

The government already cut the export duty on low-grade fines to 10% earlier this year but continued with a 30% levy on lumps.

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India’s ore production is lagging its growth of steel production. Production, according to steel ministry data, fell at a compound annual growth rate (CAGR) of 6.5% in the past five years.

Our Global Precious Metals MMI took a slight step backward this September, coming in at a value of 85 — a 4.5% drop from the previous month’s 89.

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

However, the latter half of the summer has been kind to the gold, silver, platinum and palladium prices we track, with the past three months representing the highest MMI values of the entire calendar year.

Global-Precious-Metals_Chart_September-2016_FNL

All four precious categories tracked by the MetalMiner IndX softened over the month of August for our September 1 reading, contributing to the overall 4-point decline.

Main Index Drivers: Platinum and Palladium Prices

In a forthcoming MetalMiner analysis, my colleague Stuart Burns will share his findings from interviewing Trevor Raymond, director of research at the World Platinum Investment Council. The main takeaway? That the platinum market is like a “ticking time bomb.”

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Essentially, the global platinum market has been in deficit for five years running, with mine strikes and shortfalls leading the way into a supply-side headache for the industry. Demand, meanwhile, appears robust, according to WPIC’s data and quarterly reports, led by developments on the heels of Volkswagen‘s diesel scandal, China and India’s jewelry desires, and a potentially interesting knock-on effect from rising oil prices.

However, the investment community will likely be the prime driver of PGM price movements in the future; but whether it’s a chicken-and-egg situation — rising prices spurring investment activity, or vice versa — remains to be seen.

Secondary Driver: Gold Prices

According to a recent release by Sprott Asset Management, “August marked the fourth successive month that gold prices rose in contrast to the dollar — something that has not occurred since metal peaked five years ago amidst the global financial crisis.

Demand is now at a four-year high with metal displaying one of its best yearly performances since the 1970s. Due to the rise of negative interest rates and a more volatile market, gold is looking like a safe bet for many investors,” right alongside platinum, it would seem; with a secondary positive aspect of the latter being its industrial element.

“As a result of sluggish global economic growth, central banks are pushing interest rates into negative territory, which is positive for gold,” according to Senior Portfolio Manager Paul Wong, along with the Sprott Asset Management precious metals team. “We are likely in the early stages of the current gold bull market, driven by a global push to a negative interest rate policy, currency volatility and a high level of cross-asset class correlation.”

My colleague and our in-house metals procurement specialist and analyst, Raul de Frutos, agrees — see his most recent report on the gold market.

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Tired of being an also ran?

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Having status symbols no better than the guy next door? Ever pulled up in your yacht only to find, 10 minutes later, a guy with a yacht twice the size pulls into the same bay right next to you? Yeah, tiresome isn’t it?

Who Needs a Ferrari When You Can Have a Gold iPhone 7?

Well, while everyone else is queueing outside an Apple store from midnight before the next morning release of a new smartphone, we have something so much better for you. This is the new iPhone 7 from Goldgenie, finished in 24-karat Gold, Rose Gold or Platinum, and if that is not enough for you they do a super luxury version edged and decorated with Swarovski Crystals and even high-quality diamonds. Here’s the best bit, this exclusive, oh-so-cool, piece of one-upsmanship (if there is such a word) luxurious collection will be available with prices starting at just $3,150 (£2,400).

goldgenie_gold_iphone7_550

Why buy a bigger yacht when you can have a 24-karat gold iPhone 7? Source: goldgenie.

However if you really want to push that boat out and outdo the sheikh next to you, go for the $14,300 (£11,000 ) Diamond Rockstar. A bargain, right? It is also rumored that the luxury brand may even be replicating the $3 million (£2.3m) iPhone 6s Diamond Ecstasy encrusted with over 800 diamonds. Read more

This week, a comprehensive analysis of Dodd-Frank conflict minerals compliance filings showed that while some companies are going the extra mile to insure tantalum, tin, tungsten and gold are NOT influenced by the war in the Democratic Republic of the Congo, some still have a long way to go.

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Sadly, no Party City filing this year attesting to how conflict-free mylar party balloons are.

MetalMiner Olympic Construction Beat

The rushed and low-bid Olympic venues of Rio struck again this week as we all had to make sure to nut adjust the contrast on our sets when the games treated us to green water in indoor pools. Apparently they just ran out of pool-cleaning chemicals, not a high-up line-item in the Olympic punchlist, I’d imagine.

Just pretend it’s St. Patrick’s Day in Chicago. Rio visitors and athletes also got a visit from some ROUS’ (rodents of unusual size). Yes, they very much exist.

Metal Bulls

Our Metal Markets kept gaining this week as the Federal Reserve is still showing no stomach for interest rate increases and China’s stimulus keeps on stimulating. The London Metal Exchange is even breaking 30 years of tradition and introducing gold and silver contracts to get in on all of the precious fun.

LMEring_550

“Hey guys, let’s do this for silver and gold, too! Then, eventually, PGMs, too?” Source: London Metal Exchange.

Fresh off of slapping member-warehouse operator Metro International on the wrist, the LME is looking to expand its product mix and bring a greater return back to owner Hong Kong Exchanges and Clearing, Ltd.

Free Download: The August 2016 MMI Report

HKEX could use the help after this week.

Dr. Christopher Bayer, Ph.D., of the Payson Center for International Development of Tulane University Law School, recently responded to an e-mail interview with MetalMiner Editor Jeff Yoders about the recent Conflict Mineral Benchmarking Study he led of Dodd-Frank Conflict Minerals compliance.

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More than three years after U.S. companies began filing reports about their efforts to find conflict minerals linked to armed militias in Africa in their supply chains, 65% say they still can’t make a determination about what minerals are in those chains. Bayer explained more in this MetalMiner Q&A.

Chris Bayer. Image courtesy of Tulane University.

Chris Bayer. Image: Tulane University.

Jeff Yoders: Analysis of the reports shows that conflict-minerals reports are boosting supply-chain transparency for many of these companies. Is that an added benefit to reporting?

Chris Bayer, PhD: Yes, a company can use Dodd-Frank Section 1502 to gain insight into its own supply chain, to a degree that would probably not have been previously possible. Whether and how companies may leverage that to their advantage is up to them, but without question, information is power. Quite a number of companies are weeding out non-performing suppliers in their supply chain according to their defined parameters on conflict minerals.

JY: 10% Of all filers said, or implied, they had conflict-free products. What did you and your team’s research tell you about these claims?

CB: First off, it is in fact an extraordinary claim for a company to make. A whole lot of work would go into ruling out the possibility that the company is indeed not — through its procurement practices — fueling conflict in the Democratic Republic of the Congo. Your due diligence inquiry is, by definition, very involved, given the sheer amount of tiers and suppliers to traverse on average. But as per the Securities and Exchange Commission, a company should take care not to designate is products as DRC conflict-free unless it can also provide independent assurance that would lend credibility to such a claim.

JY: Incomplete reports were still an issue. How long do you think it will be until companies can, at least, fill out complete reports?

CB: Since many companies are already able to achieve full compliance — including reporting smelter Or Refiner (SOR) and Country of Origin (COO) data — the we-need-more time argument becomes less plausible.

JY: More companies underwent product audits this year. Are outside product audits necessary for full compliance?

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CB: A company that does not opt to use the “DRC conflict free” designation is, as per the SEC statement of April 29, 2014, not required to have an independent, private-sector audit performed.

After a gap of 30 years, the London Metal Exchange is, in collaboration with the World Gold Council, getting back into precious metals. Not just because it sees an opportunity, but because the industry is in desperate need of an efficient and professional marketplace following the departure of principal banks from London’s Gold Fix in the wake of the Libor scandal and suggestions the Gold Fix could be manipulated.

Free Download: The July 2016 MMI Report

The LME announced this week it will launch centrally cleared gold and silver contracts on a platform called LMEprecious in the first half of next year, followed by platinum and palladium.

Gold bars

Gold will trade on the basis of London good-delivery 99.5% bars in 100 ounce lots. Source: Adobe Stock/misunseo.

According to Bloomberg, the new contracts are designed to complement London’s $5 trillion over-the-counter gold and silver market and will include contracts for spot, daily and monthly futures, options and calendar spread contracts, according to the statement.

Who’s Got the LME’s Back?

Trading house OSTC and banks Goldman Sachs Group Inc., ICBC Standard Bank Plc, Morgan Stanley, Natixis SA and Societe Generale SA will co-own the LMEprecious platform and will act as liquidity providers and some 30 firms have expressed a desire to be engaged from the initial offering. Read more

MetalMiner’s index of global precious metals prices notched the second-largest move for August in our Monthly MMI series, behind only the Stainless MMI.

Global-Precious-Metals_Chart_August-2016_FNL

The Global Precious MMI rose 7.2%, from 83 to 89, between July and August. Gold prices again drove the move, with U.S. bullion logging its second straight month above the $1,300 per ounce threshold; however, the U.S. palladium price experienced a significant jump, rising 18.4% over the month.

Palladium on a Bullish Rebound

After hitting multiyear lows at the beginning of 2016, palladium has begun a slow down but its long-term ascent is still acting rather bullish.

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The PGM has been making higher highs and lower lows since January, and hit above $700 per ounce at the beginning of August.

palladium historical price chart 2016

Why?

Looks like investors have been giving palladium and its cousin platinum some more love.

Analysts at INTL FC Stone and Citi Research have said recently that they think investors have taken some of the money they’ve been putting behind gold and spreading it to the PGMs, according to the WSJ.

Back to Gold

While U.S. gold prices have hovered recently, they are still far ahead of their pre-Brexit levels. The Federal Reserve‘s dovishness has not given investors any reason to abandon their investments in gold, or silver for that matter.

Core Consultants Group opined recently that gold broke through a psychologically important barrier of when it crossed $1,300/ounce and is still finding overall bidding interest despite the slight declines in the price during the last few weeks.

Free Download: The July 2016 MMI Report

We, too, can’t see gold’s recent increases being pushed back, or even tempered, by anything other than significant interest rate increases by the Fed. The type of radical action that the central bank has shown no stomach for, lately, despite recent comments that it won’t rule out increasing rates this year.

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Gold and silver will return to the London Metal Exchange soon and China’s pollution crackdown may affect tin prices as many smelters have shut down.

Gold and Silver Return to the LME

The London Metal Exchange said today it is planning to launch spot and futures contracts for gold and silver in the first half of 2017, adding to its list of products which includes copper and aluminum.

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The 139-year old exchange is working in collaboration with the World Gold Council, an industry body backed by gold mining companies such as Barrick Gold and Goldcorp, and is supported by five banks and proprietary trader OSTC, which have committed to provide liquidity.

China Cracks Down on Pollution

China could ramp up imports of refined tin as a string of environmental inspections at smelters in the world’s top producer of the metal curbs local output.

Free Download: The July 2016 MMI Report

Officials in eight provinces last month began inspecting metals producers including tin smelters, forcing some to shutter production while they look to comply with environmental standards, according to industry officials and analysts.