The precious metal had lost nearly 9% from July’s two-year highs to trade around $1,255 an ounce on Tuesday, hit by expectations the Federal Reserve would raise interest rates in December for the second time in a year.
China Overtakes U.S. as Top Crude Oil Importer
China imported record volumes of crude oil last month, eclipsing the U.S. as the world’s top buyer of foreign oil as Beijing’s state reserves shipped in cheap crude to fill new storage tanks.
This week we saw precious metals, particularly gold, fall as the Federal Reserve board looked increasingly hawkish about finally raising interest rates significantly by December. They really mean business this time!
The strong dollar has been causing metal prices to fall for the last two months, but this week it hit a seven-month high. If the dollar was Nickelback, precious metals would be Bon Jovi. When investors put their money into the metal, itself, it directly affects the value of the dollar, a commodity that’s merely a certified paper version of the valuable metal and, in this case, vice versa. Why is the dollar riding so high? The rally is based, partially, on those hawkish Fed governor comments. But there’s another reason…
The U.K. and E.U. Can’t Stop Their Brexit Bickering
Other European leaders are rattling the sabre right back and threatening punitive sanctions and zero access to the U.K. once it leaves. French President Francois Hollande seems to be leading the charge but, honestly, most French people would gladly give the U.K. anything it wants if they’d simply promise to take Hollande off their hands. He’s seriously the most disapproved of president in French history.
This has to do with metals because the back-and-forth finally resulted in a flash crash in the pound’s value and that dragged the Euro down against the dollar, too. Here in the U.S. our presidential election has turned childish bickering into somewhat of an art form. Nice that the Europeans have taken notice and are trying the same. It’s helping to boost the dollar.
Alcoa’s Last Stand (Kind of)… As One Company
Meanwhile, Alcoa, Inc., will be splitting itself in two next month. The company reported disappointing earnings in its last earnings season kickoff report as a unified group. A spin-off will take its aerospace and automotive metals business into a new direction while leaving its money-losing primary aluminum smelting business gets to… still smelt.
Anyway, the company posted a higher third-quarter profit, but revenue fell and that discouraged investors who punished the company’s stock. I bet the titanium and nickel-alloy business unit members of Alcoa thought to themselves, “not my problem anymore.”
According to SIMA data, steel imports fell in September and gold is seeing a bounce back as bargain hunters take advantage of its low price.
Steel Imports Fall
Based on the Commerce Department’s most recent Steel Import Monitoring and Analysis (SIMA) data, the American Iron and Steel Institute (AISI) reported today that steel import permit applications for the month of September totaled 2,846,000 net tons.
This was a 7% decrease from the 3,066,000 permit tons recorded in August and a 5% decrease from the August preliminary imports total of 2,989,000 nt. Import permit tonnage for finished steel in September was 2,090,000 nt, down 9% from the preliminary imports total of 2,307,000 nt in August.
For the first nine months of 2016 (including September SIMA permits and August preliminary data), total and finished steel imports were 24,808,000 nt and 19,691,000 nt, down 20% and 22%, respectively, from the same period in 2015. The estimated finished steel import market share in September was 25% and is 25% year-to-date.
Bargain Hunters Buy Up Physical Gold
Physical gold demand in London jumped after this week’s big price drop, dealers said yesterday.
Bargain hunters came to the market because of the metal’s technically-driven slide. Online gold trading platform BullionVault.com saw its heaviest trading day on Tuesday since its all-time record on June 24, the day of the U.K. referendum result on European Union membership.
Our Global Precious MMI was up a point this month, climbing to 86 from 85 last month, an increase of 1.2%, but this may be the last increase we see for awhile as gold experienced its biggest single-day post-Brexit drop yesterday. It closed at $1,268.40 an ounce, a slide of 3%, down from $1,311.20 on Monday. It’s around $1,275 as of this writing.
The yellow metal was dragged to its lowest point since the Brexit vote in June which was driven mainly by a bounce in the U.S. dollar after upbeat data triggered a break of key support at $1,300 an ounce. As speculation grows that the Federal Reserve may finally raise interest rates in December, the dollar has been given a boost and a selloff in gold has ensued. Losses in silver and platinum group metals have followed, although none fell as dramatically as gold this week.
We warned, earlier this month, that the first half investment appeal of precious metals was waning. The relatively tepid increase in September was a sign that the metals, as a group, simply could not keep the momentum of the first half. Most are blaming this pullback on the dollar, and that certainly has a lot to do with it, but the fact that economic fears about the U.S. economy have been quelled might be the real culprit.
U.S. manufacturing rebounded in September after contracting in August. New orders and production at factories increased, although employment fell. The Institute for Supply Management said Monday that its manufacturing index rose to 51.5 in September from 49.4 in August. Any score above 50 is a net expansion in manufacturing activity.
While gold is the most for-investment metal of the group, the others are experiencing similar effects as gold and their supply/demand fundamentals aren’t much better. Silver is more industrial, but acts as a safe haven, too, a veritable poor man’s gold. Platinum and palladium are more tied to the automotive and other catalyst markets. Still, they are moving largely in lock-step right now and have been doing so since the dollar bottomed out in May. Platinum is receiving a particularly cold shoulder from investors. The metal is well-supplied even if investment demand increases.
What Does This Mean for Precious Buyers?
A stronger dollar and better economic data about the U.S. economy is bad for the investment appeal of precious metals. More data will come out in the days leading up to the presidential election but precious metals’ gains of the first half are likely a thing of the past.
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The IMF on Tuesday cut its estimate for U.S. economic growth in 2016 to 1.6% from the 2.2% it had predicted in July. The American economy grew 2.6% in 2015. The fund’s dimmer outlook for the U.S. occurs even as the Federal Reserve is thought to be preparing to raise interest rates in December.
The global economy will expand 3.1% this year, it said — the same as forecast in July.
The IMF described worldwide growth as “subpar,” with a slowdown in the U.S. and other advanced economies being offset by slightly stronger output in developing and emerging nations.
Goldcorp Shuts Down Blockaded Mexican Mine
Goldcorp Inc. said on Monday it was temporarily shutting down its Peñasquito gold mine in Mexico as it was unable to safely continue operations due to a week-long blockade by a trucking contractor, sending its shares down nearly 5%.
The world’s No. 3 gold miner by market value said it was unable to bring in food, water and fuel for the 750 people on the site, which has been blockaded by a contractor concerned about losing business due to efficiency improvements at the mine.
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.
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.
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.
“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.
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.
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.
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 Associationasked 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.
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.
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.”
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.”
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).
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