Silver

This week, a comprehensive analysis of Dodd-Frank conflict minerals compliance filings showed that while some companies are going the extra mile to insure tantalum, tin, tungsten and gold are NOT influenced by the war in the Democratic Republic of the Congo, some still have a long way to go.

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Sadly, no Party City filing this year attesting to how conflict-free mylar party balloons are.

MetalMiner Olympic Construction Beat

The rushed and low-bid Olympic venues of Rio struck again this week as we all had to make sure to nut adjust the contrast on our sets when the games treated us to green water in indoor pools. Apparently they just ran out of pool-cleaning chemicals, not a high-up line-item in the Olympic punchlist, I’d imagine.

Just pretend it’s St. Patrick’s Day in Chicago. Rio visitors and athletes also got a visit from some ROUS’ (rodents of unusual size). Yes, they very much exist.

Metal Bulls

Our Metal Markets kept gaining this week as the Federal Reserve is still showing no stomach for interest rate increases and China’s stimulus keeps on stimulating. The London Metal Exchange is even breaking 30 years of tradition and introducing gold and silver contracts to get in on all of the precious fun.

LMEring_550

“Hey guys, let’s do this for silver and gold, too! Then, eventually, PGMs, too?” Source: London Metal Exchange.

Fresh off of slapping member-warehouse operator Metro International on the wrist, the LME is looking to expand its product mix and bring a greater return back to owner Hong Kong Exchanges and Clearing, Ltd.

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HKEX could use the help after this week.

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

MetalMiner’s index of global precious metals prices notched the second-largest move for August in our Monthly MMI series, behind only the Stainless MMI.

Global-Precious-Metals_Chart_August-2016_FNL

The Global Precious MMI rose 7.2%, from 83 to 89, between July and August. Gold prices again drove the move, with U.S. bullion logging its second straight month above the $1,300 per ounce threshold; however, the U.S. palladium price experienced a significant jump, rising 18.4% over the month.

Palladium on a Bullish Rebound

After hitting multiyear lows at the beginning of 2016, palladium has begun a slow down but its long-term ascent is still acting rather bullish.

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The PGM has been making higher highs and lower lows since January, and hit above $700 per ounce at the beginning of August.

palladium historical price chart 2016

Why?

Looks like investors have been giving palladium and its cousin platinum some more love.

Analysts at INTL FC Stone and Citi Research have said recently that they think investors have taken some of the money they’ve been putting behind gold and spreading it to the PGMs, according to the WSJ.

Back to Gold

While U.S. gold prices have hovered recently, they are still far ahead of their pre-Brexit levels. The Federal Reserve‘s dovishness has not given investors any reason to abandon their investments in gold, or silver for that matter.

Core Consultants Group opined recently that gold broke through a psychologically important barrier of when it crossed $1,300/ounce and is still finding overall bidding interest despite the slight declines in the price during the last few weeks.

Free Download: The July 2016 MMI Report

We, too, can’t see gold’s recent increases being pushed back, or even tempered, by anything other than significant interest rate increases by the Fed. The type of radical action that the central bank has shown no stomach for, lately, despite recent comments that it won’t rule out increasing rates this year.

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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.

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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.

Every single price point across the precious metals tracked by the MetalMiner IndX — gold, silver, platinum and palladium — increased over the month of June, helped mainly along by the boon that Brexit has been (for precious producers, anyway…more on that below).

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As a result, our monthly Global Precious MMI for July shot up 8% to 83, the index’s highest value since June 2015.

black and gold precious metals price index chart

Exit Britain, Enter Gold Price Increases

Britain’s vote to exit the E.U. left the pound Sterling in turmoil, with the British currency recently troughing at a new 30-year low, with no end to the bleeding in sight, while the Euro has also suffered. We all know what that means: investors flocking to safe-haven assets, such as gold. Which, in turn, means producers will be able to justify keeping near-to-medium-term mine production levels and exploration status quo (at least).

The U.S. bullion price of the yellow metal jumped 8.7% month over month, a significant increase. (Correspondingly, US silver bars shot up 17.2%.) Just after the Brexit vote results came in, HSBC analysts predicted that gold will breach $1,400 per ounce. It has already been flirting with the high $1,300s the past couple weeks and, according to HSBC Chief Precious Metals Analyst James Steel, “the drive higher may be more than 10% in the longer term if there were to be broader concerns about the future direction of the E.U. after the vote,” as originally reported by Kitco News.

Investors Go Long

Adding more fuel to that fire, hedge funders increased their net long positions in COMEX gold and silver contracts to record highs by the end of last week, further showing their bullishness in the safe-haven asset, according to Reuters.

Another major driver of the gold price has been the U.S. bond market. As my colleague Raul de Frutos has written, treasury prices soared and yields plunged to four-year lows as investors continued to seek haven assets. The benchmark 10-year Treasury yield fell as low as 1.45% two weeks ago, the lowest level in four years. Bond yields not only fell in the U.S.; British 10-year government bond yields sank below 1% on Monday for the first time ever. Similarly, Japanese bond yields fell below 0.1% for the first time, reflecting unprecedented long-term pessimism.

The lower the yield, the lower the returns investors get from their bonds. That’s important, because in periods where yields are near zero, many investors prefer to buy gold rather than bonds. In this manner, in the current stock market turmoil, part of the money that would normally go to assets paying a yield is going to gold instead.

Negative interest rates worldwide also help gold’s case.

Big M&A News: Centerra Gold + Thompson Creek Metals

All this Brexiting has prepped large Canadian miner Centerra Gold to pull the trigger on acquiring Thompson Creek Metals last Tuesday, based in Denver, as reported by Reuters.

The price tag: $1.1 billion, including debt.

Compare Prices With The June 2016 MMI Report

The main reason: Centerra owns and operates its main asset, the Kumtor gold mine, in Kyrgyzstan, and seeing as how the Asian nation wants a bigger cut of Centerra’s pie lately, the Canadian miner wants to reduce its exposure in Asia while boosting its footprint in North America.

With the recent upsurge in gold prices, times for miners such as Centerra are looking quite rosy.

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The Global Precious MMI joined most of the other sub-indexes this month in experiencing a 6% loss as a broad metals correction hit most markets.

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Unlike the base metals, however, our precious metals are not facing bifurcated markets where U.S. tariffs are keeping domestic prices high. As almost always with precious, this month’s fall was a global phenomenon.

Global-Precious-Metals_Chart_June-2016_FNL

Johnson Matthey is weathering the storm as best as it can this year as platinum group metals prices are starting to lose the momentum the first half of the year promised.

Production Surplus Stubbornly Lingers

According to Thomson Reuters‘ “GFMS Platinum Group Metals Survey,” a rebound in mine production last year pushed the platinum market back into a marginal physical surplus, despite improved demand.

Macroeconomics have continued gold’s roller coaster ride this month. Before Federal Reserve Chairwoman Janet Yellen dialed back expectations of an interest rate hike this week — after a bad jobs report — a strengthening U.S. dollar dragged gold prices down for much of May. Now, though, with a dovish Fed, gold is strengthening again. Silver has taken a similar ride.

Perfect Storm

The investment and industrial metals, globally, saw prices fall this month as a storm of both bad economic data for the investment metals and oversupply for the industrial metals came together. Yet, even as I write this gold and silver are strengthening again as the dollar weakens in light of that horrid jobs report. But it might just be that neither industrial demand nor monetary policy will be the story of the last six months of 2016 in precious metals.

Compare Prices With The May 2016 MMI Report

Jessica Fung, a metals strategist at BMO Capital Markets, said in the Wall Street Journal that slowing global growth should help push gold higher and likely bring silver with it.

“We believe focusing on the Fed alone is simplistic and only drives very near-term sentiment and volatility,” Ms. Fung wrote in a note. “The potential impact of sluggish global growth on the U.S. economy should not be ignored.”

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The Silver Institute released its “World Silver Survey 2016” Thursday, reporting both tightening supply and increaing demand for the precious/industrial metal.

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According to the report, the silver market saw record demand in 2015, with the jewelry, coin and bar, and photovoltaic sectors posting new highs, helping to boost total silver demand to 1.17 billion ounces last year. Overall silver supply to the market was lower, led by the continued weakness in silver scrap sales. Last year’s supply and demand scenario led to the third successive annual silver market deficit, reaching 129.8 million ounces, more than 60% larger than 2014 and the third largest deficit on record.

You can install PV panels on our roof, collect a tax credit and bring down your own electricity bill. A wind turbine? Not so much. Source: Adobe Stock/rob245.

More silver panels this year, but less silver per panel. Source: Adobe Stock/rob245.

“We expect the silver price to average $15.90 this year and that’s going to be defined by an overall upward trend,” said Erica Rannestad, precious metals demand senior analyst for Thomson Reuters GFMS, who contributed to the report. “We’ve seen prices reach highs last week and we expect that trajectory to continue through the 4th quarter of this year.”

Rannestad said in an interview that the bargain buying of the last two to five years, in the silver market, has largely given-way to more sophisticated investing as a weak dollar has heightened the white metal’s demand. Read more

Gold prices extended their best start to a year in more than 30 years this month, jumping 5.1% to 82 amid a broad precious metals rally.

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Silver has mostly caught up to its investment metal cousin, too, thanks to its dual use as an industrial and precious metal. Silver miners are seeing their stock prices increase as supply has been constrained by recent mine shutdowns.

Global-Precious-Metals_Chart_May-2016_FNLAs with most of the metals we track, China is the biggest consumer and biggest producer of gold. So, the news that China’s central bank and customs service will allow companies that have “frequent imports and exports” of gold and gold products to apply for a single permit that can be used in as many as 12 shipments was welcome for both producers and consumers. The trial to simplify the rules takes effect June 1 and applies to Beijing, Shanghai, Guangzhou, Qingdao, Nanjing and Shenzhen, the bank said in a statement.

Aside from loosened regulations, the investment metals are sitting in a good, fundamental place. The safe haven status of both gold and silver continues to help their prices as the Federal Reserve again showed no stomach for interest rate increases this month.

As my colleague, Raul de Frutos, recently wrote, this has led to the weakest U.S. dollar in 15 months and sent investors flocking to silver, gold and even the platinum group metals. That’s right, 15-month high for gold, 15-month low for the U.S. dollar index. The correlation, gold-to-dollar, is way more reliable that any physical demand indicator of gold.

It seems as if the Fed’s dovishness is catching on globally, too. Japan was expected to implement a fresh round of stimulus to weaken the yen to combat low inflation. However The Bank of Japan kept interest rates unchanged this month.

Compare Prices With The April 2016 MMI Report

There is little sign that investors will stop flocking to safe havens and with strong consumer demand in automotive and electronics it’s difficult to see an end to this bull run.

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Silver prices skyrocketed on Monday, hitting an 11-month high.

Silver price hits 11-month high

The silver price hits 11-month high. Source: MetalMiner analysis of @StockCharts.com data.

It is difficult to find a fundamental reason for such a price increase. It seems like silver is simply catching up with gold. Gold surged to a one-year high back in February and, ever since, the yellow metal hasn’t moved much, as if it was waiting for silver to close the gap.

Gold to silver ratio falls

The gold-to-silver price ratio falls. Source: MetalMiner analysis of @StockCharts.com data.

And the gray metal has done so. The gold-to-silver ratio has come down to more normal levels after rising to multiyear highs in February when gold prices surged.

Gold Gets Company

The truth is that gold is not moving up alone anymore, since this is not just about investors looking for safe haven. Commodity markets are showing the first signs of recovery.

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A weaker dollar and rising oil prices in Q1 lured investors into commodity markets this year. Not only gold but the rest of the precious metals, as dollar-denominated commodities are getting a boost over the past few months.

Platinum and Palladium Join the Party

Platinum (in red) and Palladium (in blue) recovering

Platinum (in red) and Palladium (in blue) are also recovering. Source: @StockCharts.com.

Will the Uptrend in Precious Metals Continue?

That will strongly depend on what the dollar and oil prices do from now on. The recovery in oil prices since February is encouraging, especially since prices are managing to hold their value this week despite bearish news after major oil producers supplying nearly half of global output ended their meeting in Doha, Qatar, over the weekend without reaching an agreement to cap production.

If oil prices continue to climb despite the bearish news, that would be a bullish development, suggesting that underlying supply/demand fundamentals might, indeed, be improving.

Dollar weakens in 2016

The U.S. dollar weakens in 2016. Source: MetalMiner analysis of @StockCharts.com data.

Another key factor to watch is the U.S. dollar, which will likely move in the opposite direction to oil prices. The interest rate stimulus policies that major world banks take through the year will be decisive in the value of the dollar and the rest of wold currencies.

Free Download: The April 2016 MMI Report

The U.S. dollar index is approaching new key support levels that if broken, would be another indication that commodity markets are set to continue improving.

Mitchell J. Krebs. Source: Coeur Mining.

Source: Coeur Mining.

Mitchell J. Krebs has been the President and CEO of Coeur Mining, Inc., the world’s ninth-largest silver producer, since 2011. Coeur is also a major player in gold mining and has some 2,005 employees in the U.S., Mexico and Bolivia. Coeur markets its silver and gold concentrates to third-party refiners and smelters in the U.S., China, and Japan. From 2013 to 2015 Krebs oversaw a 22% year-over-year all-in sustaining cost reduction that significantly lowered the Chicago-based company’s bottom line. Those moves are being credited with helping Coeur stock take off since the Q1 2016 surge in silver prices. He recently spoke with MetalMiner’s Jeff Yoders on the phone about the silver market and what is impacting prices on both the supply and demand sides.

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Jeff Yoders: It’s been a good quarter for Coeur, how have the recent price increases impacted the company?

Mitch Krebs: We have seen strong returns. Our business and our financial results are very tightly wound with the prices of silver and gold. In the first quarter, we saw silver go up about 11% and gold up about 17%, that goes right down to our bottom line. We have been really successful at reducing our costs over the last three years, so our revenue line is going up as our cost line is going down, our cash flow has gone up in multiples as a result our stock price climbing 120% on the year-to-date. That leverage in the change in the silver price is significant. Read more