silver price

It is rare that companies with a professional reputation like those of Thomson Reuters and the CME Group compete for the privilege of running such an important price benchmark as the London Silver Fix, a global benchmark that has been in place 117 years and has its origins in the London coffee shops of the 1700s. Even more rare? To announce after three short years they are stepping down from providing that service.

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CME Group and Thomson Reuters assumed control of executing the daily Silver Price Fix on Aug. 14, 2014, from the London Silver Market Fixing Company. CME Group has been providing the electronic auction platform on which the price is calculated and Thomson Reuters has been responsible for administration and governance of the LBMA silver price both our own Jeff Yoders and Reuters reported. So why, once a suitable replacement can be found, are the two firms stepping down from their respective roles in running the LBMA Silver Auction?

The simple truth seems to be that they are not making any money out of it. According to MarketWatch, new European legislation set for implementation in January 2018 will regulate the provision of, contribution to and use of a wide set of benchmarks which are highly regulated and deeply scrutinized, the site quotes Ross Norman Chief Executive Officer of Sharps Pixley Ltd. as saying.

“It follows there is much work and cost, but for very modest commercial reward, plus the ever-present danger of legal action or reputational damage — whether guilty or not.” Norman said. ‘Few sensible or sane people would want to create a financial benchmark — and, yet, it is absolutely necessary for the normal functioning of markets.”

You should ask, if that is the case, and Ross Norman probably knows better than anyone, who is going to take it on?

One site valued the total of above-ground silver holdings at approximately 1 billion ounces, putting the physical value at some $17 billion, but Bloomberg assessed the total silver-based financial market at closer to $5 trillion, much of which takes its price cue from the London Fix. It seems inconceivable that one of the major banks, or a number of them in cooperation, that currently contribute to the LBMA silver price will not step in to take over.

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If they don’t, the Silver Fix could conceivably migrate to Shanghai in the same way that the center of gravity for gold price-fixing has been gradually migrating east over the last decade.

CME Group and Thomson Reuters will step down from providing the LBMA silver price benchmark auction, the London Bullion Market Association said on Friday, less than three years after they successfully bid to provide the process.

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“In consultation with the LBMA, CME Group and Thomson Reuters have decided to step down from their respective roles in relation to the LBMA Silver Price auction,” the LBMA said in a members update seen by Reuters.

The two will continue to operate and administer the silver auction until a new provider is appointed, the LBMA said. It will launch a new tender to appoint an alternative provider to operate the process “shortly”, it said.

“We would be looking to identify a new provider in the summer, and have the new platform up and running in the autumn,” an LBMA spokesman said.

The two companies launched the LBMA silver price in August 2014 to replace the telephone-based London silver “fix,” which had been in operation for more than a century, with an electronic, auction-based and auditable alternative.

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CME Group provides the electronic auction platform for the benchmark, while Thomson Reuters is responsible for administration and governance. The LBMA owns the intellectual property rights.

Philippines Might Consider Indonesia-Style Ore Export Ban

The Philippines may consider banning exports of raw minerals to encourage domestic processing and boost the value of shipments, an environment official said on Friday, as the government looks to extract more from its mining sector after a crackdown.

We warned last month that the mostly small losses the prices our MetalMiner IndX experienced were caused by investors taking profits.

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Our suspicions were confirmed when almost all of our sub-indexes had big price rebounds this month. The Automotive MMI jumped 12.2% Raw Steels 8% and Aluminum 6%. Even our Stainless Steel MMI only dropped 1.7% and has taken off since February 1 as nickel supply is even more in question now with both the Philippines and Indonesia’s raw ore exports in question.

The bull market is on for the entire industrial metals complex. Last month’s pause was necessary for markets to digest gains but the strong positive sentiment for both manufacturing and construction shows no signs of ebbing in the U.S. and Chinese markets.

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.

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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.”

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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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After hitting a new all-time low last month, the monthly Global Precious Metals MMI® bounced back up a bit to catch its breath, and registered a value of 76 in September, an increase of 2.7% from 74 in August.

So What’s At Play? Gold Prices and Fed Hikes?

Yesterday, Reuters reported that spot gold prices lost more ground, after drifting downward the past several days.

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The precious metal was “hurt by a stronger dollar and as investors awaited a key US jobs report to gauge the timing of a Federal Reserve rate hike” – however, the global stock market [expletive]-show that has been rocking investor confidence lately may just be the only thing the Fed needs to go through with the hike.Global-Precious-Metals_Chart_September-2015_FNL

(Besides, ADP‘s private-sector jobs report, released this past Wednesday, betrays severe underperformance – fewer than 200,000 jobs have been added in 6 of the last 8 months, as mentioned here.)

Gold Drivers

The gold price points from each of the 4 global markets we track (the US, China, Japan and India) all rose over the past month, and along with platinum increases in Japan, China and the US, were the main drivers of the wholesale increase in the Global Precious Metals MMI®. That’s likely due to the fact that equities markets have been doing so poorly – no, heinously – from China to the Dow.

So, on the face of it, gold was a factor in the global precious index’s rise…but let’s turn attention to the historical lows of palladium.

“No. 2” PGM More of a Concern

Palladium, platinum’s cheaper and less scarce cousin, hit another bottom. The US price of palladium bars tracked on the MetalMiner IndX℠ clocked in at $600 per ounce (log in or join as a MetalMiner member at the bottom of this article to get full pricing to all the precious metals we track) – the lowest since November 2012.

As my colleague Jeff Yoders wrote recently, although US auto markets appear robust at the moment, there is uncertainty in China and correspondingly lower auto sales there. Chinese auto sales fell by 7.10% in July 2015 compared to July 2014, the largest fall since February 2013.

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Which won’t bode too well for catalytic converter sales, hence for PGM demand – and prices.

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As the base metal and ferrous metal complexes we cover continue to take a bruising, the peripheral hits have struck our precious metals price index as well, with PGMs platinum and palladium leading the charge downward.

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In fact, the monthly Global Precious Metals MMI® registered a value of 74 in August, a decrease of 7.5% from 80 in July – thereby hitting a new all-time low. Every single metal price point for gold, silver, platinum and palladium dropped across all geographies we track, including the US, China, India and Japan.

precious metals price chart august 2015

This index has never seen the 70s before, and it’s not having a really nice day as they used to say in the ’70s (at least not for investors).

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Precious Metal in Focus: Palladium

According to my colleague Raul de Frutos, writing at the end of July, palladium prices fell as much as 14% during that month:

Palladium price since 2013

Palladium price since 2013. Graph: MetalMiner.

Ironically, palladium was the best performer among precious metals until just about a year ago when it started to fall, Raul wrote. So far, year-to-date, palladium has tanked 32% with the most precipitous drop showing over the past two months. So what’s been driving the price meltdown?

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Due to its role in gas-powered car engines, palladium is more exposed to the Chinese and US automotive markets than to European markets. The slowdown of the Chinese automotive market over the past few months may be Public Enemy No. 1 as far as a driver of palladium’s price decline.

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Just a couple days ago, BMW and Toyota Motor Corp. publicly voiced their concerns over China’s car market, saying that the days of double-digit growth are likely over, as reported by Bloomberg. Both companies are concerned about their profits getting dinged, and are therefore cutting back production based on low demand numbers – BMW, for example, said earlier this week that it had cut production in China by 16,000 cars so far this year.

And Platinum?

South African mines, producers of 70% of the world’s supply, have been reporting production levels for platinum above those during the 5-month strike in 2014, as Raul has pointed out in his previous coverage. Combined with the lollygagging of the Chinese auto sector, looks as though platinum prices may not see a huge rebound for some time as well.

Wild Card

Remember, the strength of the US dollar plays a big role in the movement of this index. The dollar-to-euro exchange rate has been listed as the No. 1 driver of all the base metals in our latest, newly revamped monthly buying outlook, and it’s safe to say that’s no exception for gold and silver movement – when the dollar is strong, investors tend to leave gold behind as a safe haven a little more often.

The Global Precious Metals MMI® collects and weights 14 global precious metal price points to provide a unique view into precious metal price trends over a 30-day period. For more information on the Global Precious Metals MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.

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It’s safe to say that the Greece and China crises that have hit the global economy are going to be the biggest issues to watch as far as the precious metals markets – and prices – are concerned.

Over the past month, the monthly Global Precious Metals MMI® fell 4.8% from 84 in June, and it may have further to fall before July is out.

Global-Precious-Metals_Chart_July-2015_FNL

* Read what we said in last month’s analysis.

China’s Star is Falling

One may think that the Chinese equity market crash may help investors flock to gold as a safe haven – but not so fast.

A leading precious metals consultancy called Metals Focus, which interestingly, according to this article, has booted GFMS as the primary supplier of statistical data to the World Gold Council, points out that due to China being a gambling culture, “reckons there is more the likelihood that weak equity prices may end up adversely affecting physical gold demand. Losses generated by the impact of the stock market crash may well hit jewellery and gold artefact purchases, while the scale of the fall is such that potential investors nursing big losses may well not have the liquidity to move back into gold.”

Which would likely mean that gold prices won’t see a whole lot of support. As my colleague Raul de Frutos has noted around the office water-cooler recently, “gold’s safe haven thesis” is not really playing out, probably because of a strong dollar.

Saturday Night at the Palladium: Also Down

The palladium prices from all three global markets we track on our IndX (the US, China and Japan) fell by double digits over the past month. Platinum prices also haven’t looked so hot, looking at 6-year lows, mainly driven by weakness across other commodities and industrial metals.

Palladium spot price since 2012

Palladium spot price since 2012. Source: MetalMiner.

So what to watch in palladium and PGM markets in general?

  • Keep an eye on that US dollar – a strong dollar means a weak South African rand, and that means good news for SA producers to boost supply
  • Investment activity – ETF and other inflow/outflows
  • Next China PMI -> What that means for China automotive demand -> What that means for China auto production

Actual Gold, Silver, Platinum, Palladium Prices

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Silver prices in Japan, India and the US all rose over the past month, as did gold prices in the same regions. Silver and gold prices in China, however, fell ever so slightly. These inputs, as well as platinum and palladium prices showing mixed movement, resulted in MetalMiner’s monthly Global Precious Metals MMI® registering a value of 84 in June, holding steady at May’s level.

precious metal price index chart

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The real stories that concern us, however, may reside in the PGM markets.

2015 GFMS Platinum & Palladium Survey SAYS:

Thomson Reuters recently released its GFMS Platinum & Palladium Survey 2015, and in it, noted that the platinum market to be in a deep deficit last year “(prior to inventory movements) of 1.02 million ounces, singularly owing to major strike-related production stoppages in South Africa.” The 2014 deficit comes on the heels of surplus in 7 of the last 8 years; the deficit is expected to continue.

Meanwhile, palladium has been a market in deficit since 2007. The GFMS team estimates “the palladium market deficit last year at 1.58 million ounces, representing the most severe market imbalance for more than a decade.”

GFMS Platinum, Palladium Price Forecast

According to the survey, the average platinum price is forecast to fall by 16% year-on-year, averaging $1,170/oz, about 5% higher than May’s closing price on the MetalMiner IndX. Analysts indicate that this suggests a closing of platinum’s discount to gold. The average palladium price forecast is broadly flat year-on-year at $800/oz, not too much higher than current prices.

William Tankard, research director of mining at Thomson Reuters, is quoted as saying, “It appears to us that forward buying programs by the automotive sector are developing increasing levels of flexibility for these consumers to purchase metal when they want to, rather than need to; the sector is becoming increasingly price-sensitive. Without enduring production cuts to be achieved, by permanently closing high-cost mines, the platinum market is expected to return to surplus next year. Of course, it’s a huge challenge as a producer to make that call, incur restructuring costs and permanently close capacity, if you believe the price will recover in the short- to medium-term.”

How Does That Compare to MetalMiner’s Outlook?

It roughly matches what our lead forecasting analyst, Raul de Frutos, has written recently; in short: “Recent weakness in the dollar is giving a boost to precious metals. However, these price movements have been quite shy so far. It still makes sense to be long-term bullish on the dollar and bearish on precious metals.”

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Bolstered by a weaker dollar, global precious metals rose last month as industrial demand for palladium was finally joined by higher gold bullion and platinum prices.

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The number of Americans applying for first-time unemployment benefits inched up by 3,000 to a seasonally adjusted 265,000 in the week ended May 2, the Labor Department said recently. This was less than the 275,000 economists predicted and within reach of the unrevised 262,000 level for the prior week—the lowest since 2000.

This is the latest sign that an interest rate hike may come from the Federal Reserve as continued improvement in the US labor market might clear the path for rate hikes.

How High Will They Go?

Once the Fed starts the cycle of interest rate increases, the market can focus on how high the rates may rise, which will be less of a weight since the expectation is that rates won’t rise very much. Higher interest rates are bearish for gold because they give investors a reason to move money into investment vehicles that produce a yield. Gold has no yield.

End of the Stock Supercycle

There is also rampant speculation that a combination of downward earnings revisions and the difficulty of the banking system to turn bank reserves into money growth will lead to a large correction in the stock market. Precious metals are also a hedge against falling stocks.

The monthly Global Precious Metals MMI® registered a value of 84 in May, an increase of 1.2% from 83 in April.

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Without major central bank actions, precious metals will continue to fall in Q2 and possibly longer.

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The decline that began in February has taken hold and looks to be a long-term trend that won’t end, based on market forces alone, for some time.

The monthly Global Precious Metals MMI® registered a value of 83 in April, a decrease of 3.5% from 86 in March.

Palladium Weakness

With most of our metals still in bearish territory, even if they’re posting small gains on the monthly MMI, global precious was a bright spot through January, when it was still being bolstered by strong industrial and investor demand for palladium. That demand began dropping last month and, without palladium to prop it up, our index fell even further this month without much hope for recovery.

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As my colleague Raul de Frutos pointed out recently, palladium has broken a key support level and this indicates that selling pressure is increasing as the metal declines. It’s now recording lower high points on the CME’s spot index and that’s a clear sign that there is diminishing buying pressure during upward bounces.

Palladium-backed exchange-traded funds also saw their biggest weekly outflows (more than 50,000 ounces) since August last week. A strong dollar and low oil prices look like barriers that automotive demand, alone, can’t overcome for palladium. The mining cost of platinum and palladium has gone down with the ruble in top producer Russia and supply should be abundant enough to meet demand as production is being buttressed by the favorable exchange rate there and in number two producer South Africa.

Meanwhile, in Goldville…

Gold is still falling in most of the world in the face of that strong dollar, as well. While many long-term forecasts predict that Chinese and Indian demand will eventually propel the world’s favorite investment metal upward, the continuing strength of the dollar as a reserve currency is hurting it even more than base metals with more industrial uses.

The Federal Reserve remains conservative when it comes to when it will raise interest rates for and it’s not likely that other central banks will make a major move to rein in the strength of their currencies before the Fed. Chairwoman Janet Yellen also warned of continuing slow growth domestically and internationally this month, an argument that would seem to support keeping the rates low for the foreseeable future.

My colleague, Stuart Burns, wrote this month that other strong economies such as the UK are not likely to join in raising central bank rates for at least a further 12 months even if the Fed raises its rates tomorrow. That will exacerbate the dollar’s strength, particularly against economic regions such as the European Union, which is still dependent on a quantitative easing program.

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