Gold

gui yong nian/Adobe Stock

This morning in metals news, China hit record steel and aluminum production numbers in June as the world awaits the Trump administration’s Section 232 investigation results, the copper deficit could deepen amid further strikes and things are looking good for gold on Monday.

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

China Posts Record Steel, Aluminum Outputs in June

Ever since the Trump administration announced its opening of Section 232 investigations into steel and aluminum imports in April, the world has waited to see whether new tariffs or import quotas could be on their way.

The major focus of the investigations has been Chinese excess capacity in the global market, which the administration might strike at via protectionist measures.

The Chinese steel and aluminum industries, meanwhile, showed no signs of slowing down in June.

According to Reuters, China produced record amounts of the metals last month: 73.23 million tons of steel and 2.93 million tons of aluminum.

Copper Deficit Deepens

According to Reuters, the copper deficit is likely to deepen this year as further strikes are expected in South America; however, those strikes have already been priced in, according to the report.

Even so, the strikes are not likely to produce a rise in the copper price, according to a Reuters poll of 26 analysts.

According to the report, LME copper is up 8% on the year.

Gold Looking Up

Gold might be in for some good news during the remainder of 2017.

Free Sample Report: Our Annual Metal Buying Outlook

According to Reuters, gold broke its 200-day moving average and could be in for further gains as a result of a slumping dollar.

misunseo/Adobe Stock

Indians’ love of gold is a story with which many around the globe are familiar.

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

Just how deep is this love? A recent research report by one of India’s well-known equities firms said India had consumed — hold your breath — around $300 billion worth of gold in just the last decade.

The analysis by Kotak Institutional Equities said gold prices had gone up by 300% between FY 2008 and FY 2017. But the love story has not been the same in the last five financial years (FY 2013-17), when only half the gold consumption of the past decade was recorded, not to mention virtually flat gold prices.

It’s no wonder that under the new Goods and Services Tax (GST) implemented as of July 1, gold, according to some, has been given special treatment. The tax has been kept at 3%, nowhere near the 18% suggested by some experts.

GST is a uniform tax across India, doing away with almost all other forms of taxes for businesses. So high is this precious metal on an average Indian’s shopping list that even the 3% tax, up from the current 1.2%, has raised the hackles of buyers. Some have even suggested that the “high” GST (in reality, just 1.8% more) would once again lead to the smuggling of gold into the country.

A report by news agency Reuters, for example, quoted named and unnamed gold traders and buyers as saying smaller gold shops could be more inclined to sell without receipts, potentially hitting sales.

Indians have been familiar with the “black” gold economy.

Except for certain periods, gold smuggling has always been a part and parcel of India. In 2013, for example, when the government raised import duties on the metal to 10%, smuggling went up. The World Gold Council (WGC) estimated that smuggling networks had imported up to 120 tons of gold into India last year.

The Kotak Institutional Equities report opined that it was “unhappy” with the special treatment given to gold vis-à-vis GST. India’s policy on inflation management achieved remarkable success, which should reduce gold’s function as a “store of value,” the report said.

Gold Demand on the Rise?

A WGC report in June highlighted the potential impact of the GST on India’s gold demand. It said the new tax could have a negative impact in the short term as the industry went through a period of adjustment, but the net impact in the long term was likely to be positive. The WGC expected India’s demand for gold to be 650–750 tons in 2017 and predicted it will rise to 850–950 tons by 2020.

According to another article in the Mint newspaper, analysis of household survey data seemed to suggest that one reason why regional governments in India may have lobbied for a low tax rate on gold was because gold purchases were not exclusive to the rich.

Even though the rich tend to buy more of it, possession of gold was a universal phenomenon across income classes, according to the Household Survey on India’s Citizen Environment & Consumer Economy (ICE 360° survey) conducted by the independent not-for-profit organization, People Research on India’s Consumer Economy, which was partly financed by the WGC.

The report found that one in every two households in India had purchased gold in the last five years. The survey also revealed of 61,000 households polled in 2016, 87% of households owned some amount of gold in the country.

misunseo/Adobe Stock

This morning in metals news, the LME launched a bid to acquire a piece of the over-the-counter gold market, Chilean miners are set to go on strike and the Liberty House group has purchased two more steel mills from Indian firm Tata.

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

LME Launches Gold Contract

The LME’s new LMEprecious spot contract saw more than two tons of gold traded in its first day, Reuters reported.

According to Reuters, the suite of gold and silver contracts was formed via a group of backers, including big banks. The contracts launched at 0000 GMT Monday.

By the close of business Monday, approximately $91.3 million in gold had been traded on the LMEprecious spot contract, according to exchange data cited by Reuters.

“LMEprecious has been developed in response to market demand and in close consultation with key precious metals stakeholders,” the LMEprecious page on LME’s website reads. “Offering daily and monthly futures for both gold and silver, LMEprecious delivers greater choice for market participants, modernising the gold and silver markets to better reflect the needs of global players in precious metals markets.”

Strikes Pave Way for Higher Prices

With Chilean miners’ recent vote to go on strike, the price of copper will get a boost upward.

According to Reuters, a buildup of inventories since late June came to a stop and miners voted to strike on Tuesday, both factors which contributed to a rise in the price of copper.

LME copper was up 0.4% to $5,845.50, according to the report. However, an expected slowdown in Chinese economic growth and the strengthening of the U.S. dollar are factors behind why many analysts think the copper price will fall.

“Our forecasts suggest that most prices will fall from here,” Caroline Bain, a Capital Economics analyst, told Reuters.

Tata Deals Hartlepool Steel Mills

The Liberty House group purchased two of Indian company Tata’s steel mills, according to a report in The Telegraph.

According to the report, Liberty House signed a provisional deal to purchase the mills, located in Hartlepool, England, which produce heavy-duty 42-inch and 84-inch steel pipes used in the oil and gas industries.

Free Sample Report: Our Annual Metal Buying Outlook

According to the report, Tata will retain a third Hartlepool mill, where 270 are employed and make 20-inch tubes.

Last March, Liberty House bought two Scottish steel mills Tata was preparing to shutter.

misunseo/Adobe Stock

This afternoon in metals news, gold inches upward, partially stemming from concerns on the heels of a North Korean missile test; Germany, among others, waits to hear what the U.S. has to say about steel; and, in anticipation of protectionist policies from the Trump administration, U.S. Steel rose by 8% in June.

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

Gold Up on N. Korea Concerns

After North Korea’s recent test strike of an intercontinental ballistic missile (ICBM), the price of gold ticked upward, a common reaction for the safe-haven metal.

“Safe-haven buying re-emerged in the gold market after the latest missile test in North Korea,” ANZ Research said in a note to Reuters.

Also looming over the gold price are the minutes of June’s Fed meeting, which many awaiting for news about the Fed’s plans for further interest rate hikes this year, Reuters reported.

Germany Anticipates Trump Administration’s Words on Steel

While China is the central focus of the Trump administration’s Section 232 investigations of steel and aluminum imports, other nations are interested in the investigations’ results.

Germany is among those nations, as a top exporter of steel to the U.S. The Germans are waiting to hear from President Donald Trump during the G20 summit, which begins on Friday in Hamburg, Germany.

When asked during a news conference Wednesday whether steel would be an issue discussed during the G20 summit, German government spokesman Steffen Seibert said, “That will become apparent. It also remains to be seen what the American president brings (to the meeting).”

U.S. Steel Up Big

Many expect the Trump administration to announce new tariffs or quotas, a result of the 232 investigations into steel and aluminum imports launched in April.

While the policy recommendations of those probes haven’t been announced, some U.S. businesses are feeling pretty good about what those protectionist policies might do for them. For example, U.S. Steel went up 8% in June.

But what happens next? A self-imposted Department of Commerce deadline came and went this past Friday with no announcement of the steel investigation’s conclusion. According to Section 232 of the Trade Expansion Act, the Secretary of Commerce has 270 days to prepare a submit a report to the president.

As such, the Trump administration still has plenty of time to think about the subject of steel imports. With that said, any momentum felt by the domestic steel industry as a result of talk of impending protectionist policies could begin to deflate the longer the process drags out. Many are looking to Trump’s participation at the Group of 20 summit later this week for more specific answers regarding the president’s thoughts on steel overcapacity.

Our Global Precious Metals MMI inched up a point in April. However, this year the index seems to be struggling near 84 points. Let’s take a look at gold and palladium, two of the precious metals integrated in this index, to better understand the ongoing trend in precious metals.

Two-Month Trial: Metal Buying Outlook

Gold

Some analysts are saying that gold is up this year on its safe haven appeal due to rising geopolitical instability. But that’s simply not true. Otherwise, we would see it reflected in stock market indexes, which are trading at record highs. Not only the U.S. but also Europe, China and other emerging markets are seeing their stock markets hit multi-year highs. Investors are confident about the prospects for the global economy, and until something proves them wrong, gold is lacking any appeal as a safe haven.

Gold CME contract. Source: MetalMiner analysis of stockcharts.com

If you held gold this year, don’t thank rising political tensions; simply thank a weaker dollar and some dip buying. This year’s rally in gold follows a 18% price slump in Q4 of last year. But prices are back to their average and just 8% below $1,380/oz, a level that has been a ceiling to gold prices for four consecutive years. This means that investors will have to find good reasons to chase prices higher. Given the ongoing strength across global stock markets and the rather neutral picture of the dollar, we wouldn’t expect gold investors to get a good return on their money for the balance of the year.

Palladium

As I’ve written earlier on MetalMiner, “palladium prices rose to a two-year high in April, making it the biggest gainer among precious metals. Last month we outlined some of the factors contributing to the palladium price rise: a growing auto sector; a strong South African currency; a falling dollar; and bullish sentiment across industrial metals. However, as prices continue to climb, it’s time to question how high prices can go. Despite a still solid outlook, there are some reasons to believe palladium prices could be nearing their peak.”

One of them is a potential slowdown in demand for cars. U.S. car sales declined in April, following a disappointing month of March. Markets suspect that the car industry boom that has run since 2010 has now come to an end.

Meanwhile in China, car sales are still going strong, but the pace is not the same as last year. As I wrote before, “weaker sales tax incentives have put pressure on demand this year and are expected to slow down demand even more next year. Buyers of cars with engines up to 1.6 liters paid a 5% purchase tax last year, but they are now paying a 7.5% rate. Buyers are still finding incentives to rush on buying cars this year since the rate will increase to 10% in 2018.”

Palladium nears long-term resistance levels. Source: MetalMiner analysis of stockcharts.com data

Finally, as with the case of gold, palladium might need the stronger fundamentals to lure investors to chase prices higher. Historically, palladium has peaked in the range of $850-$900. Prices closed in April at $827.

FREE REPORT: How Circumvention Impacts Both Downstream, Value-Added Manufacturing

What This Means For Metal Buyers

Precious metals gained this year, but gains won’t come easily from now onwards. The opportunity to buy or invest in precious metals might have passed by.

Read more

This morning in metals news, we’ve seen prices for copper and gold reach three-week highs and lows, respectively.

FREE REPORT: How Circumvention Impacts Both Downstream, Value-Added Manufacturing

Threat of Supply Disruption Has Driven Up Copper Prices

Copper prices reached a three-week high today, Reuters reported, driven by potential supply disruptions. This news comes after yesterday’s rally near the Grasberg copper mine in Indonesia. Thousands of workers from the Indonesian unit of Freeport McMoRan Inc. took part, protesting against layoffs that resulted from the company’s contract dispute with the government.

Freeport had laid off 10% of its workforce, with potentially more layoffs to come. As a response, the union representing the workers has threatened to strike for the month of May.

A Three-Week Low for Gold Prices

In contrast, gold prices fell on Monday as the threat of a U.S. government shutdown faded and the U.S. dollar edged slightly higher. The metal has dropped to $1,255.50 per ounce, the lowest gold prices have been since April 10, according to FactSet data. Political tensions in Europe had kept gold prices up so far this year, but that trend seems to have been reversed.

In related news, S&P Global Platts reported that gold production in China, the world’s top gold producer as well as consumer, fell significantly in Q1 2017. In this past quarter, China produced 101.2 tons of gold, which is a 9.3% drop compared with 111.6 tons in Q1 2016.

Bernanke Argues in Favor of a Border Adjustment Tax

Former Federal Reserve Chair Ben Bernanke came out in support of the proposed border adjustment tax (BAT), suggesting to CNBC that the GOP had not presented the idea well. Bernanke argued that a stronger dollar would negate any negative effects of the BAT – which would tax imports and exempt exports – by increasing U.S. companies’ purchasing power and lowering the cost of overseas manufacturing.

Gold bears have had quite a ride since the start of this year. The price spiked to $1,286 per ounce last week, a rise of 11% since the end of last year as this chart courtesy of the Financial Times shows.

Gold in 2017

Source: Financial Times

Despite a gradually improving global economic picture, geopolitical tensions have increased in recent months first with Syria and more recently with President Donald Trump’s announcement that he was prepared to take military action in North Korea.

Two-Month Trial: Metal Buying Outlook

In Europe, investors looking to protect themselves against the political risk associated with the first round of the French presidential elections where the fear of a shock victory by the far right leader Marine Le Pen was considered a distinct possibility. During this same period, the U.S. dollar has weakened somewhat in value and with gold inversely correlated to the currency, as the dollar falls gold, and other commodity prices, rise.

Well, what a difference a week makes. North Korea has shown itself to be less capable and in the face of a tougher stance from America, less belligerent than during previous bouts of posturing.

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

In the French elections, the least bad option, Emmanuel Macron, has emerged victorious from the first round over Marine Le Pen with nearly all observers expecting he will win through in the second round of voting on May 7. Later this week we should hear President Trump’s tax policies which are widely expected to include substantial reductions in personal and corporate tax rates. On the back of solid U.S. and global economic growth, such inflationary fiscal stimulus will only hasten further U.S. Federal Reserve rate increases. Not surprisingly, Goldman Sachs is not alone in predicting further weakness in the gold price, which weakened promptly on the news of the French elections and is targeted by Goldman to fall to $1,200 per ounce this summer. While not a universal truth, Goldman Sachs predictions do tend do have an element of being self-fulfilling simply because so many investors take their advice into consideration when making investment decisions.

Gold Bears

These gold bears haven’t had as big a run as their metals brethren. Source: Haribo

Of course, there remain counter arguments as to why the gold price may yet rise. Trump’s presidential decrees are easier to make than getting legislature onto the statute book. Proclamations this week over the tax reduction will likely meet a more favorable Republican response than there was the case with healthcare but, even so, may be much delayed or watered-down before having any impact on the economy.

Likewise, U.S. growth could slow reducing the impetus for the Fed to deliver on its three expected rate increases this year. The Fed has frequently undershot rate rise expectations over recent years. Finally, our friend in Pyongyang has the ability, and no doubt inclination, to still do something stupid despite pressure being brought to bear to back down by his Chinese bankers. On balance, though, gold bears have probably had as good run this year as they are likely to get and profit-taking is now inevitable for all but long-term holders of the yellow metal.

The launch of the London Metal Exchange‘s new precious metals contracts will be delayed until July 10, more than a month later than previously announced, it said on Monday.

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

The new gold and silver contracts, a mix of daily and monthly contracts designed to enable industrial users to hedge specific dates, were due to go live in early June.

Lighthizer Clears Committee for Confirmation as US Trade Rep

President Donald Trump’s nominee for U.S. trade representative cleared a Senate committee on Tuesday, bringing the administration closely to enacting its full trade policy.

Washington lawyer Robert Lighthizer’s nomination cleared the Senate Finance Committee 26-0. Lighthizer is seen as an ally of the manufacturing industries. The panel also voted to approve a legal waiver for Lighthizer from a 1995 law that prohibits people who did work on behalf of foreign governments from serving as the top U.S. trade negotiator.

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

“Bob Lighthizer understands the issues that the U.S. steel industry faces today and we are certain he will make an outstanding United States Trade Representative (USTR),” said Thomas Gibson, president and CEO of the American Iron & Steel Institute, the largest trade group of North American steelmakers. “We thank Senator Hatch and the other members of the Senate Finance Committee for holding an executive session to progress Bob’s nomination. American manufacturers need a qualified USTR and we urge the Senate to promptly confirm Bob Lighthizer.”

Lighthizer’s confirmation now moves on to the full Senate.

Our monthly Global Precious Metals MMI dipped down a point in April from last month, losing 1.2% to end up at 83.

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

Ultimately, most gold, silver, platinum and palladium price points from the U.S., China, Japan and India dropped off for the month, which led to the sub-index’s overall decline — but there was one price point that decided to blaze its own trail upward.

The U.S. palladium bar price rose 3.4% over the past month, the third straight month of increases on the MetalMiner IndX.

What’s Going on with Palladium?

Well, automotive sector demand for palladium, at least on a spot or short-term basis, would be a hard case to make.

As my colleague, Jeff Yoders, reported earlier this week, U.S. automakers’ sales figures for March came in below market expectations and gave early evidence that America’s long boom cycle for automotive sales may finally be losing steam.

Automakers sold 1.56 million new cars and trucks in March, a 1.6% decline compared with the same month a year ago.

For example, Ford Motor Company took the biggest hit among sales drops, seeing its March numbers fall more than 7% from February’s.

Two-Month Trial: Metal Buying Outlook

According to a recent Seeking Alpha article, “going into 2017 the market was considering limited supply to be the primary factor supporting palladium prices,” with limited sector growth expected from the U.S. and European markets, and China being the only auto market to be counted on for buoyed sales.

The above has generally held true, while seasonality and investor interest in ETFs seemed to have been playing into palladium’s rise. This could well be the high point for palladium prices this first half of the year.

For full access to this MetalMiner membership content:
Log In |

The Architecture Billings Index returned to growth mode in February, after a weak showing in January. An economic indicator of construction activity, the ABI reflects an approximate nine-to-12 month lead time between architecture billings and construction spending.

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

The American Institute of Architects (AIA) reported the February ABI score was 50.7, up from a score of 49.5 in the previous month. This score reflects a minor increase in design services (any score above 50 indicates an increase in billings).

ICE Delays London Gold Price Benchmark

Intercontinental Exchange (ICE) has delayed the launch of clearing for London’s benchmark gold price because not all participants in the auction will be ready, two sources involved in the process told Reuters on Tuesday. The delay could weaken its bid to become the dominant exchange in London’s $5 trillion-a-year bullion market, sources say.