Gold

Greece’s highest court overturned its government’s decision to stop Eldorado Gold‘s mining operation and Johnson-Matthey has lifted its estimate of last year’s platinum market deficit.

Eldorado Gold Wins Greece Gold Mine Appeal

Greece’s top administrative court has annulled the government’s decision last year to revoke Eldorado Gold‘s mining license, according to court documents published on Wednesday. The Canadian mining company had appealed to Greece’s top court to overturn the ban on its plans to develop gold mines in a forested area of northern Greece, in a case widely seen as a test of the new leftist government’s approach to foreign investment.

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Eldorado has put about $700 million into the project since 2012 and planned to invest another $1 billion to develop two mines at Skouries and Olympias sites in Halkidiki. Greece’s government initially revoked its permit in August, saying the tests for a so-called flash-melting method the company planned to use to ensure there would be no environmental damage did not take place on the spot, but rather outside Greece.

Johnson-Matthey Lifts Platinum Estimate

Johnson-Matthey has lifted its estimate of last year’s platinum market deficit after a surge in Japanese bar investment late in the year, though it cut its expectations for the palladium market shortfall.

Speaking at ETF Securities‘ annual investment conference on Wednesday, JM’s general manager for market research Peter Duncan said he expected deficits for both metals to persist this year, although he admitted this may have little impact on prices.

The company lifted its estimate for last year’s platinum market deficit to 702,000 ounces from 652,000 ounces in November, which Duncan cited in the earlier presentation. He credited the change to both an upswing in investment and a 13% drop in recycling.

Platinum hit its weakest point in more than seven years on Wednesday at $812.09 an ounce.

Gold is typically considered a safe haven while markets are volatile, and with the recent equity slide both in China and US, investors are thinking of gold as an alternative, safe haven investment.

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Indeed, since the start of the year gold prices have received a boost, hitting a 2-month high as global stock markets sold-off.

The Gold-Silver Ratio Spreads

The global stock rout didn’t have any bullish effect on silver prices since the precious metal has an industrial metal status, too. That might help explain why gold fared better than silver in January.

Gold (in yellow) versus Silver (grey)

Gold (in yellow) versus Silver (gray). MetalMiner analysis of @StockCharts.com data.

Is Gold’s Rally Sustainable?

We don’t think so. Gold’s rally comes after prices hit a six-year low in December so it seems like a normal reaction after an oversold condition. As we can see in the long-term chart below, gold is still in a textbook falling trend.

Gold bouncing off lows

Gold is simply bouncing off lows. Source: MetalMiner analysis of @StockCharts.com data.

If investors were seriously putting money into gold, we would have prices moving significantly higher by now. The key point here is that the stock market selloff is driven by a slump in commodity prices. Gold is also a commodity and falls along with commodity markets.

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Moreover, a strong dollar is also bad news for gold. We expect the dollar to keep strong as interest rates rise domestically and the currencies of commodity-intensive countries keep losing value against the dollar while low commodity prices hurt their economies more significantly.

What This Means For Metal Buyers

We’ve discussed previously that the gold’s safe haven theory doesn’t always work, especially under the market environment we have right now. Gold’s rally is likely to be short-lived. Although stocks don’t look attractive right now, buying gold doesn’t look like a much better idea. Cash will probably give better returns than most assets in this first half.

Low commodity prices may be great for industry and for consumers, but for those engaged in the heavy industry, it is brutal.

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There have been mass layoffs in the oil sector from the US shale industry to the offshore oil and gas markets around the world as energy companies slash investment. This week it is the turn of miners to hit the headline, in the Financial Times Anglo American is reported to be slashing 85,000 jobs from a total of 135,000 worldwide.

Over the next two years, the multinational will suspend dividends and demand its assets either move down the cost curve or be sold. CEO Mark Cutifanis is quoted as saying once the restructuring is complete, Anglo is likely to own “between 20 and 25” assets compared with the 55 mines and smelters it owns today as it focuses on copper, diamonds and platinum, moving out of iron ore, coal and base metals generally.

Path to Profitability?

Even so, dramatic as the moves sound some feel they are not radical enough. Deutsche Bank is reported as saying “The chief executive and Anglo American appear in denial,” to the seriousness of their situation. Nor is the firm alone, even Rio Tinto Group, one of the architects of the collapse in iron ore prices, is slashing $1.5 billion of capital expenditure over the next two years to cope with prices that have sunk below $40 per metric ton, a ten-year low, in spite of continued strong Chinese imports.

Rio is still investing in new capacity aiming for 360 million mt of production by 2017 as low prices have finally taken their toll on high-cost domestic Chinese mines and forced steel mills to increase imports.

Banks, too, are feeling the pain. Morgan Stanley is the latest to announce layoffs saying this week it would close its base metals trading desks globally as part of up to a 25% cut in jobs in its commodities and fixed income division.

Enough Pain to Go Around

Nor is the rout limited to the metals markets. Following the collapse of any form of agreement at the Organization of Petroleum Exporting Countries  (OPEC) Vienna meeting, the Brent oil price fell below $40 per barrel this week for the first time in almost seven years. At this level, not only will American fracking firms begin collapsing next year but so will oil majors be slashing investment around the world.

Many are asking, surely, the darkest hour is just before the dawn, right? The world is not in recession, are commodity prices not positioning for a major rebound next year? With capacity being cut here, there and everywhere, with oil-producing countries budgets nearly universally in deficit, surely the stage is set for a strong rebound? Prices across the board are back to where they were before the super-cycle took off, such input costs should spur global growth and drive demand in a more constricted-supply landscape pushing up prices, no?

Surely, a Turnaround Must Come Soon, Right?

No. Eventually mine and oil/gas well closures and lack of new investment will translate into a more constrained supply market, but we are talking years. For oil, we have Iran about to enter the supply market and Saudi Arabia shows little sign of wanting to give way market share to their old adversary.

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Coal will continue to struggle against the headwinds of climate change legislation while metals great demand driver, China, is moving away from industrial and infrastructure-led investment growth towards internal consumption sharply reducing the prospect for a dramatic turnaround in Chinese imports, even if GDP generally continues to grow at a healthy 5-6%.

We have a bear market and, while some metals may be reaching their cost of production, the industry globally isn’t in enough pain yet to do more than trim output. Lower for longer remains the order of the day for 2016.

This week was stark proof that the metals industrial buyers purchase could see their prices fall a lot further, despite the historic lows many are already at.

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Gold hit a fresh five-year low. The year-long erosion of steel prices continued. Closure after closure is not helping the price of zinc. The President and CEO of the Aluminum Association, while admitting the headwinds the industry faces, is touting its benefits.

It Could Be Worse

In these difficult times it’s important for producers to remember one silver lining: at least they’re not selling oil! Oil fell below $40 a barrel again this week and ahead of an OPEC meeting Saudi Arabia and its allies are expected to double down on production in an attempt to force smaller, North American shale oil drillers out of the market.

With oil prices down this landowner can at least still sell his cattle at a reasonable price. Source: Adobe Stock/ W.Scott

You’d think that with oil prices down this landowner can at least still sell his cattle at a reasonable price, but low oil prices are dragging down all commodities. Source: Adobe Stock/W.Scott.

The joke, though, might be on the Saudis as my colleague Stuart Burns has previously said, the shale oil drillers have simply become so lean and mean that they can’t be undercut. We call it a reshalient industry.

On top of the glut from OPEC, Iran is looking forward to getting back in the game after the UN nuclear deal opens its oil products back up to world markets. So, it’s easy to foresee a bigger glut in the near future. Oil is a key commodity market whose price effects prices of just about all other commodities thanks to its effect on transportation and production costs.

Low, Low Prices… That Could Go Lower

If you’re a buyer it’s all gravy with lower surcharges, production costs and prices coming your way. Black Friday has lasted all year for buyers of industrial metals and it looks like the sale will continue well into 2016. I saw some interesting additive manufacturing techniques this week that could lower production costs even more in the near future, too.

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Of course you could always save more by timing your purchases to keep from buying too early, so check out our forecasting offering — there’s a free trial right now — to know when to buy and when to hold back. Happy buying, readers!

Gold sinks (yellow) as dollar surges (green) simultaneously. Source: MetalMiner analysis of @StockCharts.com data.

Gold sinks (yellow) as dollar surges (green) simultaneously. Source: MetalMiner analysis of @StockCharts.com data.

The price of gold hit a fresh five-year low on Friday after closing at $1,056 per ounce, the lowest level since February 2010.

Brazil’s government got more aggressive about penalizing the owners of what it says is its worst mining disaster ever and India wants to unlock the potential of its citizens hoarded gold

Samarco Disaster Lawsuit

Brazil filed a lawsuit on Monday against two of the world’s largest mining companies for 20 billion Brazilian reals (about $5 billion) to clean up what it says was its worst environmental disaster, caused by the collapse of a tailings dam at a joint venture iron ore mine the two operated.

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The governments of Brazil and those of two states hit by the damburst sued iron ore operator Samarco and its co-owners, the world’s largest miner BHP Billiton Ltd. and the biggest iron ore miner Vale SA.

India Wants Citizens To Sell it Their Gold

India is discussing changes to a scheme to unlock the country’s massive stash of gold at a high-level meeting this week, after a muted response to the program in the first month of its launch, according to banking sources.

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Prime Minister Narendra Modi launched the plan on Nov. 5 to lure an estimated 20,000 metric tons of gold hoarded in households and temples into the banking system. But only 400 grams trickled in over the first two weeks as low returns and worries over income tax kept Indians away.

The price of gold hit a fresh five-year low on Friday after closing at $1,056 per ounce, the lowest level since February 2010.

Gold sinks to 5-year low

Gold sinks to 5-year low. Source: @StockCharts.com.

Since a peak on October 14th of $1,190 an oz, gold’s decline has been savage with down days after down days. It’s pretty clear by now that the main driver is the US dollar.

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The dollar index, which tracks the buck against a basket of international currencies, made its low on October 14th, coinciding with the dollar’s peak, and ever since, the greenback has done nothing but surge.

Gold sinks (yellow) as dollar surges (green) simultaneously

Gold sinks (yellow) as dollar surges (green) simultaneously. Source: MetalMiner analysis of @Stockcharts.com data.

Looking ahead, there really isn’t any reason to think there’s going to be a turnaround in gold or that gold has found a floor.

Interest Rates

Gold traders are looking ahead to the Federal Reserve‘s upcoming interest rate decision. Experts forecast a 78% likelihood the Fed would raise rates in December. An interest rate hike could (but not necessarily) boost the dollar even higher as it would add more market conviction that the domestic economy is doing well, or at least better than most major economies, which is good for the dollar.

Also, if the Fed raises rates, higher borrowing costs domestically would make the dollar more attractive to yield-seeking investors.

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As always, we still need to wait for how the market reacts to the announcement. But for now, things are pointing to a continuation of the dollar’s bull market and, therefore, more to come on the downside for gold.

Platinum prices fell around 15% in the last three weeks. Prices are now at their lowest levels since January 2009. What is causing the price slump? Is it just the Volkswagen scandal? We don’t think so.

Platinum hits 6-year low

Platinum hits 6-year low. Source: MetalMiner analysis of @StockCharts.com data.

Just before prices plunged, the London Bullion Market Association (LBMA) held a conference in Vienna in which senior representatives from all sectors of the precious metals market attended. The audience predicted an average platinum price of $1,072 per ounce for next year.

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They also predicted higher palladium prices for 2016, averaging $844 per ounce. If you read us, you probably know that we don’t like forecasts, especially when based on opinions. The LBMA audience better be lowering their forecast after prices nose-dived days after the conference. Read more

The fallout from the Paris attacks was felt in markets this morning as both gold and oil jumped in early trading. There’s still little good news to report for copper, which saw a major producer slash its premium for delivery to China.

Gold, Oil Up in Early Trading

Gold and oil edged up in nervous trading this morning following the deadly attacks on Paris and large-scale French airstrikes in Syria, although broader commodities markets remain weak on poor fundamentals, Reuters reported.

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Gold, typically seen as a safe haven in times of heightened risk, jumped about 1% as Asian shares and US stock futures fell but later fell. The euro skidded to a 6-1/2 month low. Oil prices edged higher, but copper slipped to a six-year low.

Codelco Cuts Chinese Copper Premium

Chile’s Codelco, the world’s top copper producer, has slashed its 2016 premium to China for the refined metal by more than a quarter to a three-year low, traders said on Monday, the latest sign of weakening demand from the market’s biggest buyer.

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In a move that will deepen concerns about waning consumption as growth in the world’s second-largest economy slows, Chile’s state-owned miner, Codelco, offered a premium of $98 per metric ton for 2016 term shipments, down from $133 per mt this year.

Gold prices have fallen more than 8% during the past three weeks.

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In October, the yellow metal rallied thanks to a weaker US dollar, but we already pointed out that the rally was likely to be short-lived as we expected the dollar to start rising. This is exactly what happened, the US dollar index recently made a seven-month high while gold prices fell sharply with the rest of commodities tied to the dollar (commodities are priced in US dollars and thus are negatively correlated to dollar fluctuations).

Gold Spot Price

The spot price of gold. Source: MetalMiner analysis of @StockCharts.com data.

This month, investors now see a 70% chance of a Federal Reserve interest rate increase in December after the release of positive non-farm payroll numbers and the latest comments from the Fed.

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The combination of higher rates and a surging dollar is particularly bearish for gold and other precious metals. Silver prices are following the same pattern:

Silver Spot Price

The silver spot price keeps falling. Source: MetalMiner analysis of @StockCharts.com data.

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