Silver

Gold and silver are heading into a risky zone. Both precious metals have fallen for the past four years but it looks like more declines might be around the corner.

Gold since 2014

LBMA gold since 2014. Graph: MetalMiner.

Gold tried to rally this year but the rally wasn’t sustainable. Gold is now back to $1,150 an ounce and seems ready to hit another multi-year low. Despite all the global economic uncertainty, “gold’s safe heaven thesis” is not really playing out.

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A strong dollar and bearishness across commodities are what’s really driving gold prices down.

Silver since 2014

Silver since 2014. Graph: Metalminer.

Not surprisingly, silver is following the same pattern as the same price drivers are applying. Indeed, silver is already hitting a multi-year low. Interestingly, the same thing happened last year when silver fell and then gold followed.

What This Means For Metal Buyers

The outlook remains bearish not only for base metals but also for precious metals. Gold and silver at approaching key support levels and if not able to hold, we could see prices sinking. The buying strategy to take on gold and silver is pretty clear: don’t buy weakness.

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Silver came close to breaking a key low on Friday and an Iran deal could exacerbate the oil surplus.

Silver Close to $15/Ounce

US silver finished the day at $15.39 per ounce on Friday and it flirted with numbers close to $15 several times in the trading day.

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It is currently trading at $15.62/ounce.

Iran Deal Could Add to Oil Surplus

Any nuclear deal between Iran and six world powers loosening sanctions against Tehran has the potential to flood an oversupplied oil market with more fuel. Other commodity sectors such as cement and steel would see a rise in demand as Iran works to revitalize its economy. Officials said on Sunday they were close to a deal that would bring sanctions relief in exchange for curbs to Tehran’s nuclear program.

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The US Mint ran out of silver eagle coins again this week and half of the new nickel smelters in Indonesia won’t open this year due to low demand.

Silver Eagles Sell Out

The US Mint said on Tuesday it temporarily sold out of its popular 2015 American Eagle silver bullion coins due to a “significant” increase in demand, the latest sign that plunging prices have spurred a resurgence in retail coin and precious metal buying.

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In a statement sent to its biggest US wholesalers, the mint said its facility in West Point, NY, continues to produce coins and expects to resume sales in about two weeks.

This is the second time the mint has sold out of silver coins in the past 12 months, it ran out of 2014-dated American Eagles last November. In 2013, the historic drop in precious metals prices unleashed a surge in global demand for coins, forcing the mint to ration silver coin sales for 18 months.

New Nickel Smelters Not Necessary

Nickel producers in Indonesia may only build half of the 12 new smelters anticipated this year and some may not commence production immediately due to low global prices, a senior industry official said.

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This week our metals faced off against a resurgent US dollar and, once again, lost ground.

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It’s enough to make a metals trader or buyer need a stiff cocktail. How about a nice Moscow Mule in a copper mug? Two ounces of vodka, four ounces of ginger beer and one ounce of lime juice just isn’t the same in glassware. How can your fizzy ginger beer be served in plain, old glassware? Well, badly.

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The US dollar index has declined 6% since its peak in mid-March.

Why Manufacturers Need to Ditch Purchase Price Variance

This decline gave a boost to commodities and, of course, precious metals were not left behind. However, their upside moves look anything but impressive. Despite the weaker dollar, it seems as if precious metals are having a hard time moving away from their lows.

Gold prices rose a shy 6% since mid-May. The yellow metal is still near record lows. A bit more encouraging is the move silver is making, up 12% since mid-May. The grey metal, however, is still near record lows as well. The metal is trading at $17.71/oz and we’ll see if it can break medium-term resistance at $18.5/oz.

A bit more encouraging is the move silver is making, up 12% since mid-May. The gray metal, however, is still near record lows as well. The metal is trading at $17.71/oz and we’ll see if it can break medium-term resistance at $18.5/oz.

Platinum is up 7%. A very small movement compared to its huge decline since summer last year. The metal has a long way up to reach last year’s levels.

Palladium rose 8% after making a 1-year low in March. Palladium is clearly the best performer among precious metals but since summer of last year is also being dragged down with the rest of precious metals.

What This Means For Metal Buyers

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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US Sen. Lisa Murkowski, (R-Alaska), last week, introduced the American Mineral Security Act of 2015, a bill that promises “to prevent future mineral supply shocks and boost the competitiveness of our energy, defense, electronics, medical, and manufacturing industries.”

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The AMSA would require that the director of the US Geological Survey establish a list of minerals critical to the American economy and provide a comprehensive set of policies to address issues associated with their discovery, production, use, and reuse. It also would require that the federal government establish a methodology for the designation of critical minerals, based on potential supply disruptions and the importance of their use, and require the list to be reviewed and updated at least every two years.

Critical Minerals

There are also changes in permitting, the Federal Register process and the bill would extend an executive order issued by President Obama in 2012, regarding the permitting of important infrastructure projects, to mines that produce critical minerals and critical mineral manufacturing projects. The full bill is available online at the Senate website.

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This month our base metals took a big tumble. Some industrial metal prices that faltered in January fell of a steeper cliff.

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The Copper MMI®, Raw Steels MMI® and Construction MMI® all recorded drops of more than 5% and only our Global Precious Metals MMI® and Rare Earths MMI® were able to post price increases this month as low oil prices continued to drag down other commodities.

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Gold and Silver are significantly up since November. Although the move is worth watching, we need to remember that prices don’t move in a straight line, they zig-zag.

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We pointed out last week that gold was showing strength. However, silver seems weaker than gold. While gold is only off 5% from hitting a 10-month high (see orange arrow), the gray metal is still 20% off (see dark blue arrow).

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We have briefly covered Greece’s decision to vote in the far left “anti-austerity” Syriza party in posts this week, mentioning the short-term impact it has had on copper and gold prices.

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In truth, though, the outcome of the election had been largely priced into both commodity prices and foreign exchange rates, so although the euro weakened on the news it has not crashed. Switzerland’s removal of the Franc’s peg to the euro had more impact and the European Central Bank’s annnouncement of a quantitative easing program was equally disruptive. But Syriza’s election and formation of the government with the help of the far-right Independent Greeks party will certainly start a period of considerable volatility in European markets as negotiations are conducted in the glare of publicity, and no doubt behind closed doors, about Greece’s future in the European single currency.

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Any failure to meet austerity commitments to the European Central Bank, International Monetary Fund and European Commission next month by Greece will see the next tranche of loans not being paid by the troika of at the end of February. As liquidity from the ECB to Greece’s banks dries up, a banking crisis will ensue.

Don’t miss this free download of our Monthly MMI® Report, covering price trends in 10 metals markets.

Not surprisingly, private money is already heading for the door, some €8 billion of deposits have been pulled since November when the election was called. So, who will blink first? Syriza or the troika?

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