Gold

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.

Compare Prices With The March 2016 MMI Report

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.

Free Sample Report: Our April Metal Buying Outlook

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.

Free Download: The March 2016 MMI Report

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.

Free Sample Report: Our March Metal Buying Outlook

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.

Free Download: The March 2016 MMI Report

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.

Free Sample Report: Our March Metal Buying Outlook

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.

Free Download: The March 2016 MMI Report

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.

Free Sample Report: Our March Metal Buying Outlook

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.

Free Download: The March 2016 MMI Report

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.

Free Sample Report: Our March Metal Buying Outlook

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.

Free Download: The February 2016 MMI Report

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.

Free Sample Report: Our March Metal Buying Outlook

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.

Gold has had a barnstorming start to the year, rising 17% since January 1st to its peak of around $1,260.

Free Download: The February 2016 MMI Report

The dynamic behind the rise in prices has been a heightened risk aversion and panic over… well, just about everything really. Without fear to drive demand, gold suffers from the cost disadvantage of storage and finance costs but without the corresponding income stream of dividends.

Fear Can Be a Great Gold Price Driver

With Japan becoming the latest country to offer negative interest rates, investors sitting on cash are figuring out the sums on gold carry costs. Adrian Ash, head of research at BullionVault, is quoted as saying: “Negative deposit rates in the Eurozone and Japan are now approaching commercial storage charges on physical bullion, while Swiss Libor and the Swedish Riksbank’s deposit rate already exceed even the higher fees of gold-backed exchange traded funds (ETFs).”

Are gold prices really going to keep rising? Source: Adobe Stock/Nikonomad.

Are gold prices really going to keep rising? Source: Adobe Stock/Nikonomad.

The cheapest major ETF is the iShares Gold Trust, says Ash, which charges 0.25% per year, while the biggest gold ETF is the iShares SPDR, which costs 0.40%. “Commercial storage rates for large-bar gold are nearer 0.10%,” says Ash. Read more

Anglo American already has suitors waiting to buy its assets and gold prices fell a little but were still able to hold above $1,200 an ounce.

South32 Wants Anglo American’s Manganese Mines

South32 Ltd. — a spinoff of BHP Billitoncould be among the first to buy assets placed on the block this week by South Africa’s Anglo American PLC, with the Australian company saying it was interested in its manganese unit.

Free Download: The February 2016 MMI Report

The two companies share a manganese mining and smelting business located in Australia and South Africa, with Anglo American owning 40% of the division.

Gold Prices Fall, But Only a Little

Gold eased as stocks rebounded but managed to hold above $1,200 an ounce on bets the Federal Reserve could slow the pace of U.S. interest rate hikes.

Spot gold fell a bit this week but still ended above $1,200 an ounce. Source: Reuters

Spot gold fell a bit this week but still ended above $1,200 an ounce. Source: Reuters

Free Sample Report: Our February Metal Buying Outlook

Saudi Arabia and Russia agreeing to freeze output has not had the effect on oil prices that both nations likely wanted. Goldman Sachs also thinks gold is overpriced and won’t reach much higher.

Oil Prices Still Fall

Brent crude oil fell 3% yesterday, erasing early gains after top producers Russia and Saudi Arabia dashed expectations of an outright supply cut by agreeing only to freeze output if other big exporters joined them.

Benchmark Brent prices jumped briefly to $35 a barrel after Russia and Saudi Arabia agreed to keep output at January levels, in what could be the first joint OPEC and non-OPEC deal in 15 years.

Free Download: The February 2016 MMI Report

Qatari energy minister Mohammad bin Saleh al-Sada said the step would help to stabilize the oil market, which has experienced price declines not seen since the early 2000s because of a supply glut.

But buying quickly ran out of steam as investors weighed the chances of the agreement being sealed, with Iran absent from the talks and determined to raise production.

Goldman Sachs Recommends Shorting Gold

Investors should short gold, one of the best performing assets this year, Goldman Sachs said, as it believes a recent rally triggered by concerns over the health of the global economy has been overdone.

Free Sample Report: Our February Metal Buying Outlook

Bullion has gained about 13% in 2016 as worries over negative interest rates and their impact on the banking sector sent investors scurrying out of equities and into gold as a safe haven.

We weren’t expecting to be saying that last year but after a strong showing in the fourth quarter, demand has risen even more strongly since the start of 2016 to push gold prices up to near the 20% threshold needed to call it a bull run.

Free Download: The February 2016 MMI Report

Demand picked up in the final quarter of last year as central banks bolstered their reserves and investment demand increased even as the US Federal Reserve raised interest rates a World Gold Council report says.

How Did Gold Buck Commodities Trends?

The fourth-quarter performance was driven by a 25% increase in demand from central banks, with Russia and China’s central banks leading the way in purchasing. Russia’s central bank stockpiled the most, adding an estimated 60 metric tons to its reserves.

The country bought around 200 mts of gold last year, 141 mt of it between July and September. Although physical gold demand in 2015 was almost flat compared with 2014 at 4,212 mt, a weak first half was countered by a strong rise in the second half with Q4 up 4% over the same period the year before, a trend that continued strongly into this year.

Gold Price

Source: Bloomberg News

That started a price trend that has been fueled this year by growing volatility in stock markets caused, analysts say, by fears over slowing growth in China. But, in our view, slowing growth in China is old news. Growth there has slowed down in line with Beijing’s predictions and, while the underlying data suggest the slow down is more pronounced than official, figures state there is really little new from that quarter. Read more