Gold

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This morning in metals news, Wisconsin Gov. Scott Walker signed a bill ending the state’s moratorium on gold and silver mining, Chile approaches a busy year for mine union negotiations, and Chinese steel futures drop.

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Going for the Gold in the Badger State

Wisconsin Gov. Scott Walker signed a bill ending the state’s moratorium on gold and silver mining, Wisconsin Public Radio reported.

The moratorium was imposed in 1998, when Walker was a member of the state Assembly.

Union Negotiations on the Horizon in Chile

Chile’s copper mining industry has a busy schedule next year, with 32 union contracts on the docket, Bloomberg reported.

Chile, a dominant force in the copper industry, will negotiate the contracts, which represent approximately 75% of the country’s copper output, according to the report.

China Steel Futures Drop

Chinese steel futures took a dip Tuesday as a result of concerns regarding demand in the country, the world’s top steel consumer, according to Reuters.

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According to the report, upward price movement driven by supply constriction is expected to be counterbalanced by a drop in demand as winter weather affects construction projects.

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This afternoon in metals news, the U.S. renewable energy industry has reason to worry about the Republican tax proposal, union members at the Quebrada Blanca copper mine in Chile move closer to a strike, and precious metal prices fall.

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Renewables Market Pushes Against BEAT Tax

While the Republicans’ latest attempt at an overhaul of the U.S. tax system is receiving the usual praise and criticism, the renewable energy sector is concerned – and understandably so. As Dino Grandoni explains in the Washington Post, the bill may inadvertently end investment in wind and solar energy.

Currently, many companies have large multinational corporations finance wind or solar energy projects, and in return, give the latter the renewable energy credit that the government provides. But these credits may be cancelled out as part of the base erosion anti-abuse (BEAT) tax, which is meant to discourage multinationals from moving profits abroad.

According to the American Wind Energy Association’s Peter L. Kelley, the BEAT tax – if it is not amended to exempt renewables credits – could put an end to more than half of the country’s wind projects.

Strike Brewing at Quebrada Blanca Mine

A quarter of the workforce at the Quebrada Blanca copper mine in Chile moved closer to a strike, as the 106-member union rejected Canadian miner Teck Resources’ contract offer on Wednesday, Reuters reports. Ninety-six percent of the union voted to reject the offer and strike, said the president of the union. Read more

Gold prices seem to be moving sideways after prices peaked in September.

Gold prices followed similar patterns to other base metals (such as copper and nickel), and rallied during Q3. We might expect to see price pullbacks after volatile bullish runs.

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Gold spot prices. Source: MetalMiner analysis of FastMarkets

Gold and the U.S. Dollar

U.S. dollar-price movements heavily impact gold; the weaker the dollar, the stronger the gold price.

The U.S. dollar has appeared weak since the beginning of this year, while gold prices have risen. This suggests a negative correlation.

Gold-Continuous Contract price in orange. U.S. dollar in black. Source: MetalMiner analysis of StockCharts

In the chart above, both gold and U.S. dollar prices appear in the upper half of the chart. The black line at the bottom reflects the correlation between the U.S. dollar and gold prices. Both correlate negatively, which supports our previous statement.

A weaker U.S. dollar will help boost gold prices. Moreover, the correlation value falls between  -0.70, and even closer to -1. Therefore, gold and the U.S. dollar have a strong negative correlation, and the U.S. dollar serves as a reliable indicator for gold.

However, at certain times the correlation appears positive.

In July 2016 and July 2017, both the U.S. dollar and gold prices traded together. This tells us that the negative correlation doesn’t always provide clues as to gold prices.

S&P 500 Supporting the Bulls

Stock markets also shed light on metals markets.

Even though increasing stock markets do not necessarily equate to booming metal prices, they do suggest confidence in the overall economy. The S&P 500 currently trades at its historical levels, even in uncharted territory.

S&P500. Source: MetalMiner analysis of StockCharts

A rising stock market reflects investors’ positive sentiment with respect to the economy. The S&P 500 has increased by 15% so far this year. A better economic performance may lead traders to put their money in commodities, which will support the rally in base metal and precious metal prices.

Chinese Stock Market

The Chinese FXI index reflects an expansion in that economy.

Even though the FXI index has fluctuated more than the S&P 500 during the last five years, the uptrend that began in 2016 appears sustainable (at least for now).

FXI Source: MetalMiner analysis of StockCharts

Long-Term Relationship: Copper and Gold Prices

Readers might be asking: how can I relate gold prices to base metals strategy?

The answer is simple: copper and gold have traded historically in the same trend. Both gold and copper prices are currently in a long-term uptrend.

Gold-Continuous Contract price in purple. Copper in black. Source: MetalMiner analysis of StockCharts

However, a couple of divergences took place at the beginning of 2016 and at the end of the same year.

Gold prices rallied at the beginning of 2016, while copper prices increased (but by a smaller amount). At the end of 2016, copper prices rallied and gold prices dropped. They recovered afterwards, continuing its uptrend together with copper.

What This Means for Industrial Buyers

Industrial metal buyers may want to consider gold price trends as an additional indicator at which to look.

Currently, stock markets are signaling a continuation of a commodities bullish market, as well as a healthy economy in U.S. and China. Therefore, buying organizations may want to understand how and when to buy to reduce their costs.

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Buying dips are reflected in our Monthly Outlook and a long-term analysis for every base metal and steel forms in our free Annual Outlook. 

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Management’s claim that this is one of the best gold projects on the planet may be a bit of hyperbole, but it does tick all the boxes as an exciting new resource located close to major communication and support infrastructure in a politically and economically stable country.

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The Curraghinalt gold deposit in the Sperrin Mountains, County Tyrone, Northern Ireland is owned by junior miner Dalradian Resources, which since the purchase of the resource in 2009 is said to have invested hundreds of millions of dollars, developing more than 2 kilometers of underground tunnels and more than 100,000 meters of drilling in order to prove the resource and qualify for planning consent.

Indeed, so compelling are the numbers and so attractive is the case that the only hitch seems to be that Dalradian’s Curraghinalt is situated in the center of an area of outstanding natural beauty, raising fears environmental objections may delay approval.

Read more

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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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Key Price Movers and Shakers

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