The Global Precious Monthly Metals Index (MMI), which tracks a basket of precious metals and precious metals prices, picked up one point for an MMI reading of 107 this month.
Palladium Surges, Widens Spread with Platinum
Last month, we noted the narrowing of the platinum-palladium spread in platinum’s favor, down to $539 per ounce as of Sept. 1.
This past month, however, that narrowing proved short-lived, as the spread ballooned to $763 per ounce.
The palladium price has been a steady riser this year.
“The price has risen a third this year alone and hit $1,700/ounce this week on the back of a limited supply market facing off rising demand from tighter emission standards in China and a switch from diesel to petrol in Europe, both favoring palladium demand,” MetalMiner’s Stuart Burns explains. “This is despite a generally weak global automotive market, with production down everywhere. Think what it would be like with production at 2017-18 levels — probably over $2,000/ounce. It may still hit that next year.”
China’s massive automotive market has contracted this year.
Through the first eight months of the year, automotive production in China reached 15.93 million units, down 12.1% on a year-over-year basis, according to the China Association of Automobile Manufacturers. Meanwhile, Chinese automotive sales through the first eight months were down 11% compared with the first eight months of 2018.
Meanwhile, U.S. automotive production in August reached 213,000 units, approximately flat compared with August 2018, according to Federal Reserve Bank of St. Louis data.
Gold, Silver and Fed Rates
Meanwhile, in the safe-havens, market watchers should keep an eye on the Federal Reserve.
“Gold and silver are being driven more by safe-haven status and expectations the Fed will reduce rates,” Burns explained. “Lower interest rates are a boost for gold and, to a lesser extent, silver. The investment community is taking an interest in gold this year, with ETF holdings near three-year highs and heavy buying by the Chinese central bank adding almost 100 tons in the last 10 months as it seeks to diversify away for the dollar. For the time being, Fed expectations will be the prime mover for prices.”
In September, the Federal Reserve announced it would lower the range for its benchmark interest rate by 25 basis points, to a range of 1.75-2.0%, marking the Fed’s second cut this year.
However, Fed Chairman Jerome Powell indicated the possibility of another rate cut this month, USA Today reported.
“While not everyone fully shares economic opportunities and the economy faces some risks, overall, it is — as I like to say — in a good place. Our job is to keep it there as long as possible,” Powell said in opening remarks during an event at the Federal Reserve Bank of Kansas City on Oct. 9. “While we believe our strategy and tools have been and remain effective, the U.S. economy, like other advanced economies around the world, is facing some longer-term challenges — from low growth, low inflation, and low interest rates.
“While slow growth is obviously not good, you may be asking, ‘What’s wrong with low inflation and low interest rates?’ Low can be good, but when inflation — and, consequently, interest rates — are too low, the Fed and other central banks have less room to cut rates to support the economy during downturns.”
President Donald Trump has on numerous occasions this year criticized the Fed and Powell for not doing enough to cut interest rates.
Actual Metal Prices and Trends
The U.S. silver ingot price fell 5.6% month over month to $17.21/ounce as of Oct. 1.
U.S. platinum bars fell 4.4% to $875/ounce, while U.S. palladium bars rose 12.7% to $1,638/ounce.
Chinese gold bullion fell 2.9% to $47.99/gram. U.S. gold bullion dropped 3.2% to $1,478.60/ounce.