Precious Metals

A couple of developments made precious metals soar in the first half of the year.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

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

Gold (in yellow) vs platinum (in Blue). Source: MetalMiner analysis of stockcharts.com data.

  • Back in December the U.S. dollar peaked. Weakness in the currency lasted until May and boosted the price of precious metals.
  • 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.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

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.

AdobeStock_John_Takai_security_gold

“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.

Ewww, Canada. Read more

The industrial metals complex saw prices slip nearly across the board in August as volatility
returned to stock markets and investors lost confidence in central banks’ ability to increase
growth.

MM-IndX_TRENDS_Chart_September2016_FNL-TOPVALUE100

Even the vaunted Global Precious MMI, which has enjoyed large gains this year due to safe
haven status, dropped this month. It experienced a 4.5% loss. Our Construction MMI and the Grain-Oriented Electrical Steel MMI indexes saw increases this month, but every other sub-index either saw a 2-5% loss or held flat.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

This was somewhat expected as metals such as steel and aluminum remain in a global oversupply situation and metal prices don’t move in a straight line. They zig-zag. Our metal price benchmarking service has thousands of transaction prices to reference as evidence of that.This could be merely a one-month correction or it might signal that the weakness in metals markets is finally denting the bull run of strong price performers such as gold and platinum. Stay tuned next month for more.

You get the sense speaking with Trevor Raymond, Director of Research at the World Platinum Investment Council that the Platinum market is like a ticking time bomb – they are my words not his but during an interview prior to the release of the WPIC’s Platinum Quarterly Report for Q2, Trevor disclosed details about the supply side to the platinum market that bear further scrutiny.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

The platinum market has been in deficit for five years now, a series of strikes and outages have consistently led to poor supply side numbers and 2015 was no different running a 520,000 ounce deficit. Investors looking for price increases have been thwarted by large, above-ground stocks that, while difficult to accurately quantify, are estimated by the WPIC as dwindling from some 4 million ounces to a current level of 2 million ounces over the period. Read more

Our Global Precious Metals MMI took a slight step backward this September, coming in at a value of 85 — a 4.5% drop from the previous month’s 89.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

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.

Global-Precious-Metals_Chart_September-2016_FNL

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.”

Two-Month Trial: Metal Buying Outlook

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.”

My colleague and our in-house metals procurement specialist and analyst, Raul de Frutos, agrees — see his most recent report on the gold market.

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U.S. Automakers sales numbers were down substantially in August. The drop is something that’s usually expected as the summer sales season winds down, but the steepness of said drop is what’s more concerning to economists and automotive executives.

Two-Month Trial: Metal Buying Outlook

Ford Motor Co. saw the biggest drop, down 8% year on year for the month of August to 214,482, General Motors was down 5% to 256,429 vehicles and Volkswagen was the most down 9.1% to 29,384 vehicles. Of the majors only Fiat Chrysler showed any growth, buoyed by a strong line up of SUVs to post a 3% increase to 197,000.

Automotive_Chart_September-2016_FNL

While automotive metals remain a lucrative and sought-after market for both steelmakers and aluminum smelters, the pace of sales is slowing. Sales are still on a pace to beat last year’s record of 17.5 million, but the seasonally adjusted annual sales rate dropped to 17 million last month, according to Autodata Corp. That’s the slowest pace for an August since 2013, and far below the 17.9 million pace set in July and 17.7 million in the same month last year.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

Increases in precious metals had buoyed the Automotive MMI for much of this year, but the catalytic converter metals stalled this month and that was the cause of much of the drop in our index. Steel prices remain bifurcated between U.S. and global prices and a summer of uncertainty over U.S. Steel‘s section 337 case has led to little clarity for metal buyers of Chinese automotive steel. U.S. Steel’s case centers on an allegation that Chinese steel companies stole the formula and process for an automotive alloy.

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The commodities sector is suffering from lackluster prices, weak demand and, in many cases, overproduction but one sector is on the up, and that’s precious metals. Particularly gold and silver prices.

Two-Month Trial: Metal Buying Outlook

According to the Financial Times, gold and silver have been among the best performing metals during 2016, powering a sharp rally in stock prices and helping miners ease concerns over their finances.

Gold Prices Take Off

Since the start of the year, gold has risen 27% while silver is up 46% giving more scope to the sector to return to dividend payments.

Source: Financial Times

Source: Financial Times

Many miners cut dividends after the price of gold, which peaked at about $1,900 in 2011, started to fall sharply in 2013. Although gold miners were not alone, they did take action early. Read more

We rarely see such positive growth in metal prices as we did in the August MMI Price Trends Report.

MM-IndX_TRENDS_Chart_August2016_FNL-TOPVALUE100

All the metals we track were up save for Aluminum, which fell only 1.3%, and renewables and rare earths, which held flat. The Stainless Steel MMI increased 9% amid uncertainty about Chinese nickel ore supply after mining crackdowns in top supplier, the Philippines.

Two-Month Trial: Metal Buying Outlook

Meanwhile, the most bullish of bull runs continued for our Global Precious MMI which added a 7.2% increase to its jump last month to knock on the door of the top 10% of the IndX. The platinum group metals had strong increases along with gold and silver this month.

Wall Street Bull

“Hey metal buyers, remember me?” Wall Street bull courtesy of iStock.

Palladium, particularly, made higher highs and stumbled to lower lows in classic bull market fashion.

So buy quickly before prices increase more, right? Wrong. Our Raw Steels MMI posted a healthy 4% increase, but it’s still heavily dependent on China’s stimulus programs to keep demand up in the largest global consumer of steel products. If there is a pullback in stimulus, prices could fall dramatically. The same is true for copper.

Unlike diamonds, bullish trends in commodities and industrial metals don’t last forever. Continue to make informed buying decisions in this thriving market — watch China’s stimulus program and the strength of the U.S. dollar post- Brexit — and remember that today’s price strength might be tomorrow’s carpet getting pulled out from under your feet.

After a gap of 30 years, the London Metal Exchange is, in collaboration with the World Gold Council, getting back into precious metals. Not just because it sees an opportunity, but because the industry is in desperate need of an efficient and professional marketplace following the departure of principal banks from London’s Gold Fix in the wake of the Libor scandal and suggestions the Gold Fix could be manipulated.

Free Download: The July 2016 MMI Report

The LME announced this week it will launch centrally cleared gold and silver contracts on a platform called LMEprecious in the first half of next year, followed by platinum and palladium.

Gold bars

Gold will trade on the basis of London good-delivery 99.5% bars in 100 ounce lots. Source: Adobe Stock/misunseo.

According to Bloomberg, the new contracts are designed to complement London’s $5 trillion over-the-counter gold and silver market and will include contracts for spot, daily and monthly futures, options and calendar spread contracts, according to the statement.

Who’s Got the LME’s Back?

Trading house OSTC and banks Goldman Sachs Group Inc., ICBC Standard Bank Plc, Morgan Stanley, Natixis SA and Societe Generale SA will co-own the LMEprecious platform and will act as liquidity providers and some 30 firms have expressed a desire to be engaged from the initial offering. Read more

Gold and silver will return to the London Metal Exchange soon and China’s pollution crackdown may affect tin prices as many smelters have shut down.

Gold and Silver Return to the LME

The London Metal Exchange said today it is planning to launch spot and futures contracts for gold and silver in the first half of 2017, adding to its list of products which includes copper and aluminum.

Two-Month Trial: Metal Buying Outlook

The 139-year old exchange is working in collaboration with the World Gold Council, an industry body backed by gold mining companies such as Barrick Gold and Goldcorp, and is supported by five banks and proprietary trader OSTC, which have committed to provide liquidity.

China Cracks Down on Pollution

China could ramp up imports of refined tin as a string of environmental inspections at smelters in the world’s top producer of the metal curbs local output.

Free Download: The July 2016 MMI Report

Officials in eight provinces last month began inspecting metals producers including tin smelters, forcing some to shutter production while they look to comply with environmental standards, according to industry officials and analysts.