Silver prices hit a 3-month high on Tuesday. The move is encouraging and prices could continue to rally in the short-term, but the metal remains in a long-term downtrend. Silver will likely have a hard time reaching $17.50 per ounce. Gold prices are still lagging. Source: MetalMiner analysis of @StockCharts.com data.
Although physical demand in China and India have picked up, gold prices remain at low levels and are unable to make substantial upside moves.
We really don’t pay that much attention to gold’s demand because gold is the only commodity where physical annual demand is only a tiny fraction of total supply available. Unlike base metals, where physical demand plays a big role because of their industrial uses, shortages of gold caused by physical demand never happen.
For this reason, the price of gold is almost entirely dependent on the factors that drive traders’ psychology, such as inflation and the dollar. Despite all that, we still see analysts writing lengthy reports analyzing factors with zero predictability, such as jewelry usage and annual gold production.
Since August, gold prices haven’t moved much. They have traded between $1,160 per ounce and $1,080 an ounce. As we pointed out in July, gold broke a key support level and now prices have some resistance to overcome before they can attempt to advance.
Gold is considered a safe-haven asset and certainly equity markets are not in their best shape at the moment. However, it’s hard to imagine gold prices rising while commodities markets, overall, fall and the dollar is strong. The same applies to silver, which is showing the exact same behavior.
What This Mean For Metal Buyers
Gold and silver prices remain weak and it’s difficult to see them increasing while commodities keep falling and the dollar remains strong. Buyers should keep an eye on $1,160 per ounce and $15.6 an ounce levels. A break above these levels would signal a change in the direction of the short-term trend.
Mints have begun rationing sales of silver coins as supplies dry up due to low, low prices and the London Metal Exchange is set to launch its first contracts with position limits.
Silver Coins Running Low as Prices Fall
The global silver-coin market is in the grips of an unprecedented supply squeeze, forcing some mints to ration sales and step up overtime while sending US buyers racing abroad to fulfill a sudden surge in demand.
The US Mint began setting weekly sales quotas for its flagship American Eagle silver coins in July because it can’t meet demand, and the Canadian mint followed suit after record monthly sales in July. In Australia, the Perth Mint sold a record of more than 2.5 million ounces of silver this month, nearly 4 times more than in August, and has begun rationing supply of a new line of coins this month, a mint official told Reuters.
LME Premium Contracts Will Have Position Limits
The London Metal Exchange‘s new premium contracts, scheduled for launch in November, will come with position limits, a first for an LME contract.
Reuters’ Andy Home writes that the LME is proposing to give itself the authority to introduce position limits “as a general power rather than a power specific to premium contracts.”
With an eye on looming, broader regulation in financial markets, that represents a major shift in the way LME trading has been regulated. Position limits have long been anathema to a market that, as Home writes, “has come to epitomize Britain’s light-touch oversight of wholesale markets.”
Switzerland will investigate precious metals price collusion and Horizonte Metals is the first buyer in Glencore‘s mining assets sell-off.
WEKO Wants Precious Probe
Switzerland’s WEKO, a government watchdog group, said on Monday it had opened an investigation into possible manipulation of the precious metals market by several major banks. Its investigation, the result of a preliminary probe, was looking at possible collusion of bid/ask spreads in precious metals markets by UBS, Julius Baer, Deutsche Bank, HSBC, Barclays, Morgan Stanley and Mitsui.
The move comes a month after press reports that the European Union’s competition regulator was investigating anti-competitive behavior in precious metals spot trading, and follows news of a US probe by the Department of Justice and the Commodity Futures Trading Commission earlier this year.
Horizonte Buys Glencore Nickel Mine
Horizonte Minerals said on Monday it has bought Glencore’s Araguaia nickel project in Brazil for $8 million.
“This is a game-changing transaction for Horizonte. We have been able to negotiate a unique transaction leveraging the current depressed commodity markets,” Horizonte CEO Jeremy Martin said in a statement.
RBC Capital Markets recently released updated forecasts for the gold and silver markets. Conventional wisdom says that safety plays such as precious metals outperform during periods of stock market weakness, but, as we’ve pointed out before, general commodity weakness is dragging down even traditional hedges such as precious metals along with their base metal cousins.
With the market volatility of the last few days, one might think that silver and gold would see a rebound as investors, at least initially, abandon stocks and put their money into something reliable such as hard currency. Gold and silver are up, but the outlook for the precious cousins is still, at best, mixed.
In the report, analyst Stephen Walker lowered his price targets for both gold and silver through 2018. RBC reduced its Q4 2015 forecast for gold from $1,300 an ounce to $1,150/ounce, a 12% reduction. For silver, RBC scaled back its Q4 2015 forecast by 15%, from $18/ounce to $15.25/ounce.
RBC believes that a Federal Reserve interest rate hike in a weak inflationary environment will pressure gold and silver prices. That hike got a little less likely, at least in the near term, in the last few days as the global stock market plunge happened. Cheaper imports from China mean lower prices and deflationary pressure in the US.
All of the precious metals we track on the MetalMiner Indx were up after Friday’s market selloff and gold held firm in a tight range on Monday in London, trading above $1,155 per ounce as China’s markets continued to plummet.
According to data gathered by Commodity Futures Trading Commission, last Tuesday the COMEX gold futures and options net position of managed money turned bullish for the first time in five weeks. Silver’s net position of managed money also was bullish last week after seven bearish weeks. Treasury bonds, another safe haven, saw their yields fall, as well. The 10-year Treasury yield fell below 2% for the first time in nearly four months and traded 7.8 basis points down on the day at 1.976%, its lowest point since April 28.
It is too early to tell if gold and silver will see their hedge appeal restored, but the conversation has significantly changed when it comes to interest rate hikes and weary investors may see silver and gold in a different light, depending on how long China’s market rout continues.
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 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.
A strong dollar and bearishness across commodities are what’s really driving gold prices down.
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 are approaching key support levels and if they are not able to hold, we could see prices sinking. The buying strategy to take on gold and silver is pretty clear: don’t buy on weakness.
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.
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.
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.
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.
This week our metals faced off against a resurgent US dollar and, once again, lost ground.
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.
When vodka comes into contact with the walls of a copper mug, oxidation begins which boosts the aroma, and in turn s taste of vodka. Cold copper may increase the amount of bubbles in the ginger beer, offering maximum fizz to the cocktail. Even the taste of the lime juice is enhanced by cold copper, and it reduces the acidity of the drink to complement the ginger beer.
Served Better in Metal
The original Moscow Mules demanded strict eight-ounce copper mugs, even. Sadly, the mixology craze has not yet pushed enough copper mugs onto shelves to effect the Copper MMI. If prices stay low, perhaps more and more mules will be sold and more bars will invest in copperware causing a Friedmanian run on copper. Pass me another full mug, please.
Our Russian friend is not the only cocktail to be enhanced by delivery in a metallic vessel.
Silver and Mint Juleps
Mint Juleps are said to be better served in silver cups, again to enhance the taste of the mint and the bourbon, although this precious metal investment is a bit more pricy than the copper mugs of the pride of Moscow.
With summer upon us, it’s a good time to break out the metal drinking vessels, anyway, and get the best outdoor experience from your oxidizing and cold, metal vessels. That and it’s barbecue season. Even foodsafe stainless steel has gotten into the act. Hard to believe that there was a time when beers weren’t packaged in aluminum cans, isn’t it?
Make sure to enjoy your metal-cupped cocktails safely this summer. No one wants their next drink to come from a tin cup.
The US dollar index has declined 6% since its peak in mid-March.
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 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. Read more