Articles in Category: Precious Metals

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The Global Precious Monthly Metals Index (MMI) fell one point for a June MMI reading of 93, marking the third consecutive month of decline for the MMI.

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The Platinum-Palladium Spread

Contrary to historical trends, the palladium price has soared past the platinum price for approximately a year and a half now.

Last month, however, MetalMiner’s Taras Berezowsky noted a short-term shift against that trend, as the spread between the two metals narrowed to $479 (palladium fell 2.6%, while platinum rose 4.5%). As Berezowky noted, a recent poll forecast the platinum-palladium price spread to average $485 per ounce this year.

This month, however, both platinum and palladium dipped; the spread rose in the process to $489 per ounce.

According to consultancy Metals Focus, palladium will post a supply deficit this year while platinum will be in surplus, which will continue to maintain the premium palladium has obtained over the last 18 months.

The interplay between high palladium prices and depressed platinum prices can be seen in South Africa, where miners are reaping the benefits of the former but struggling with the latter, Reuters reported. Per the report, miners in the country are faced with ore that produces twice as much platinum as palladium.

As MetalMiner’s Belinda Fuller recently explained in an analysis of palladium and platinum prices, platinum likely won’t stay this down for long.

“Platinum prices, however, remain somewhat low historically,” she wrote. “The recent performance against the DXY does not necessarily suggest the metal is undervalued. However, given that platinum can serve as a substitute, it’s doubtful the price will stay suppressed long term, as high palladium prices will drive a push toward substitution.”

Gold Star

Elsewhere in the Global Precious MMI basket, gold is outperforming other commodities, MetalMiner’s Stuart Burns noted.

“The price of gold hit a three-month high Tuesday, at $1,327.9 per troy ounce as investors continued to buy into exchange-traded and physical gold. Inflows into the world’s largest gold ETF, the SPDR Gold Trust, rose by 2% Monday,” Burns wrote last week. “That marked its biggest one-day gain since 2016, the Financial Times reported, part of a wider inflow that bought holdings in gold-backed ETFs to their highest in a year.”

Given global economic uncertainty stemming from trade, it’s no surprise investors are turning to the safe-haven asset.

But how much further can the gold price go? Can it surge past the $1,400 per troy ounce threshold?

Pump the brakes on that thought — at least for now, Burns argues.

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“Global political and economic developments would have to take a dire turning for the worse to stimulate a rise above the mid $1,300s,” Burns argues.

Actual Metal Prices and Trends

The U.S. silver price fell from $14.93/ounce to $14.77/ounce as of June 1.

The U.S. platinum price fell 7.4% month over month to $820/ounce, while the U.S. palladium price fell 4.1% to $1,309/ounce.

Chinese gold bullion rose 3.1% to $42.92/gram. U.S. gold bullion rose 3.2% to $1,324.80/ounce.

Some commentators were all over the gold price this week, with Kitco News writing gold “took off like a rocket this week.

“The last three days in the metals have been strong, with both gold and silver exploding higher,” the Kitco News report said.

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Emotive language like “exploding” and “taking off like a rocket” reinforce the impression gold is on a tear; indeed, its rise has been significant.

The price of gold hit a three-month high Tuesday, at $1,327.9 per troy ounce as investors continued to buy into exchange-traded and physical gold. Inflows into the world’s largest gold ETF, the SPDR Gold Trust, rose by 2% Monday. That marked its biggest one-day gain since 2016, the Financial Times reported, part of a wider inflow that bought holdings in gold-backed ETFs to their highest in a year.

Investors are motivated by a desire to hedge against weakness in global equity markets and uncertainty about the future of trade relations between the U.S. and China, the article suggests.

Certainly, growth is slowing. The DailyFX reports May’s U.S. service-sector ISM and PMI reports, as well as the Fed’s Beige Book survey of regional economic conditions, are coming into alignment, suggesting the U.S. economy is belatedly reflecting signs of a now 15-month slowdown in global growth.

There are suggestions the Fed’s next move will be a rate reduction, with markets predicting the probability of two 25-bps cuts before the end of the year at 87.8%. Interest-rate-induced dollar weakening, with the accompanying possibility of higher inflation, would be a boost to gold — but some caution is needed before we accept Kitco’s $1,400 per troy ounce target for gold.

The Fed monetary easing has already been factored into the market and, in part, gold’s rise has reflected that.

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Global political and economic developments would have to take a dire turning for the worse to stimulate a rise above the mid $1,300s. That’s not impossible, but at some point sanity has to prevail and progress made in trade negotiations – or am I missing the intended outcome?

In spite of their status as precious metals, the automotive industry accounts for a high percentage of platinum and palladium demand annually, making the pair essentially industrial metals.

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Given that a high percentage of demand generated from the automotive industry relates to the use of the metals within the catalytic converter, as the automotive market moves more fully toward electric powered vehicles, demand will likely decline for both metals.

Meanwhile, according to Reuters, even though palladium- and platinum-heavy fuel cell technology in the electric car market is on the rise, the growth in this area is unlikely to offset falling autocatalyst demand.

Given that prices for palladium soared of late, let’s take another look at palladium price trends, along with its close substitute platinum.

Palladium, Platinum Price Trends Compared with the Dollar Index (DXY)

Given that metals and the dollar index (DXY) tend to move in opposite directions, we can see that palladium prices gained quite a bit more value than expected when looking at the DXY trend line against the palladium trend line in light blue below.

Source: MetalMiner data from MetalMiner IndX(™) and Yahoo.com

On the other hand, platinum’s price movement in the U.S. looks much more in line with what we might expect when compared with the relative performance of the U.S. dollar. Therefore, although platinum prices historically exceeded palladium prices, platinum prices still trend fairly close to the expected (recent) value, while palladium prices started to look inflated. Platinum prices peaked in 2008 at more than $2,000 per ounce.

Source: MetalMiner data from MetalMiner IndX(™)

Looking at the price difference in the U.S. between the two metals, or spread, as shown by the purple line in the chart above, we see that the spread between the two flip-flopped in late 2017 to early 2018. The spread surged since last year, hitting a peak around March 1, 2019. More recently, the spread has moved sideways at around $500 per ounce.

Do Chinese Palladium and Platinum Prices Drive U.S. Prices?

Given that China consumes a high percentage of palladium, we could expect that Chinese prices lead U.S. prices.

Source: MetalMiner data from MetalMiner IndX(™)

A look at the price trend lines between the two countries does in fact show a high correlation in prices between the two countries, especially long term.

More recently, U.S. and Chinese platinum prices continued to move in a tight band together.

Chinese palladium prices, on the other hand, trend above U.S. prices, with the gap growing in 2019 – not surprising given that China leads demand for the metal globally.

Source: MetalMiner data from MetalMiner IndX(™)

The zero line in the chart above indicates where the two countries’ prices are equal. At points above zero, the Chinese price is higher. The price difference tended to amount to U.S. $25-$50 per ounce, but increased into 2018. During the past few months, the difference decreased again slightly, but still looks somewhat high historically.

Source: MetalMiner data from MetalMiner IndX(™)

The chart above shows the spread between Chinese and U.S. prices. When the spread value is under zero, U.S. prices are higher.

The spread between U.S. and Chinese platinum prices tends to lean toward the U.S. having the higher price. However, since 2016, the prices trended very close together. U.S. prices started to look relatively more expensive again in 2019.

What This Means for Industrial Metal Buyers

For industrial metal buyers looking to track palladium prices, the Chinese price offers a solid proxy of what we might expect with regard to the future behavior of palladium prices.

While the price indicates slightly weaker Chinese demand of late, prices for palladium remain at historically high levels.

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Platinum prices, however, remain somewhat low historically. The recent performance against the DXY does not necessarily suggest the metal is undervalued. However, given that platinum can serve as a substitute, it’s doubtful the price will stay suppressed long term, as high palladium prices will drive a push toward substitution.

No, we’re not talking about Eddie Murphy and Dan Aykroyd (although we do love that classic film).

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The Global Precious Monthly Metals Index (MMI) has just entered a two-month downtrend, with global trade uncertainties and other economic worries serving as a backdrop. Platinum and palladium are once again taking center stage.

The subindex tracking a basket of gold, silver, platinum and palladium prices from four different geographies decreased one point to 94 for the May reading — a 1.1% drop — driven by drops in U.S. gold, silver and platinum prices.

While both platinum and palladium prices dropped last month, in May only palladium began the month lower, while platinum bumped up a bit. This tangible — yet potentially insignificant — short-term reversal of fortune for those two platinum-group metals (PGMs) stands in stark contrast to the previous trend: a huge divide over the past year and a half or so in the platinum-palladium spread, with the latter metal holding a vast premium to the former, which continues today.

Based on MetalMiner IndX data, the U.S. palladium price fell 2.6%, down to $1,365 per ounce, for the month of May. Meanwhile, the U.S. platinum price rose 4.5%, clocking in at $886 per ounce.

Palladium still holds at nearly $100 per ounce higher than the gold price, which stood at $1,283 per ounce in the U.S. at the beginning of the month — down only a few dollars per ounce over the previous month.

Platinum and Palladium (and Gold and Silver) Perspectives

This one-month price trend reversal looks to align with the longer-term forecast as well, according to some analysts.

“Palladium will cost an average $485 an ounce more than platinum this year – a record breaking premium – but the gap will narrow in 2020 as the rally fizzles out and platinum recovers after an eight year downturn,” a Reuters poll showed, according to this article.

“The poll of 27 analysts and traders conducted this month returned a median forecast for palladium to average $1,350 this year – its highest annual average ever – and $1,275 in 2020,” the article stated. “That prediction is higher than a similar poll three months ago which forecast prices of $1,200 this year and $1,150 in 2020.”

Meanwhile, Goldman Sachs stated in a recent analyst report that “we think that lack of substitution by auto companies will lead palladium to continue to outperform platinum,” according to Kitco News.

The investment bank went on record as saying, “Palladium is also set to benefit more than platinum from tighter environmental restrictions in China,” and “as such we reopen our long palladium-versus-short platinum trade recommendation.”

Goldman is also bullish on gold and bearish on silver.

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Their analysts “are trimming their [gold] forecasts to $1,300 an ounce for three months, $1,325 for six months and $1,375 for a year from now.” For silver, they listed “three-, six and 12-month silver forecasts of $14.50, $15 and $15.50 an ounce, down from $15.50, $15.50 and $16 previously,” according to the Kitco News article.

After a scorching six-month uptrend, the Global Precious Monthly Metals Index (MMI) couldn’t get any hotter even as spring officially came around the corner, finally succumbing to a cooldown in April.

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The subindex tracking a basket of gold, silver, platinum and palladium prices from four different geographies dropped three points to 95 for the April reading — a 3.1% decrease — driven by a drop in palladium and platinum prices.

Even though the U.S. palladium price has cooled off a bit to begin the month of April, this marks the third month in a row it has traded higher than the gold price (even though the spread is a bit tighter).

As tracked by the MetalMiner IndX, the U.S. palladium bar price stood at $1,401 per ounce on April 1, an 8% drop from March 1.

In fact, every single constituent metal price comprising the Global Precious MMI basket — 14 in all — fell this month.

The Latest Palladium Price Outlook

According to a recent Kitco News report, BMO Capital Markets has “hiked their forecast for palladium sharply, looking for it to remain underpinned by a tight supply-demand picture and maintain a large price premium over sister metal platinum for the foreseeable future.”

The report states BMO “upped its average price forecast for palladium by 45% to $1,612.50 an ounce this year and upped its 2020 outlook by 11.3% to $1,112.50.

“As the premium over platinum continues to hit new records, there can be no doubt palladium is in a heavy market deficit at present amid stagnant supply and higher catalyst loadings for gasoline vehicles,” said BMO, as quoted by Allen Sykora of Kitco News. “And with substitution being a slow burn rather than an immediate fix, there remains decent potential for further upside. Qualifying a new catalyst is an expensive and time-consuming process, and we would expect this to occur only when the next range of vehicle models emerges.”

Sykora goes on to report “the bank figures that substitution to platinum will eventually occur, thus 2019 will be the peak for palladium prices.”

How tight is the supply market for palladium? Still as tight as we reported last month.

“‘The market is still fundamentally tight,” said Philip Newman, of the Metals Focus consultancy, as quoted by Reuters. In addition, the consultancy forecasts a 789,000-ounce shortfall this year in the 10 million ounce-a-year palladium market — and deficits of a similar size for several years after that, Reuters reported.

“Once the dust settles [on this latest downward blip for palladium], prices will start to recover,” he is quoted as saying.

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What This Means for Metal Buyers

Expect palladium prices to be relatively well-supported in the long term (over the next 6-12 months or so), if this supply strain continues.

According to a recent report from the U.S. Geological Survey (USGS), U.S. mines churned out $82.8 billion worth of minerals in 2018.

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The 2018 total marked a 3% year-over-year increase from $79.7 billion in 2017, according to the report from the USGS National Minerals Information Center.

“The Mineral Commodity Summaries provide crucial, unbiased statistics that decision-makers and policy-makers in both the private and public sectors rely on to make business decisions and national policy,” said Steven M. Fortier, director of the National Mineral Information Center, in a prepared statement. “Industries – such as steel, aerospace and electronics – processed nonfuel mineral materials and created an estimated $3.02 trillion in value-added products in 2018, which is a 6 percent increase over 2017.”

The report highlights the U.S.’s dependence on foreign sources for a number of minerals. According to the report, “imports made up more than half of U.S apparent consumption for 48 nonfuel mineral commodities, and the U.S. was 100 percent net import reliant for 18 of those.”

Of the 18 commodities for which the U.S. is totally reliant on imports, 14 were named on a critical minerals list designated in May 2018 by the U.S. Department of the Interior.

The full list of critical minerals included: aluminum (bauxite), antimony, arsenic, barite, beryllium, bismuth, cesium, chromium, cobalt, fluorspar, gallium, germanium, graphite (natural), hafnium, helium, indium, lithium, magnesium, manganese, niobium, platinum group metals, potash, the rare earth elements group, rhenium, rubidium, scandium, strontium, tantalum, tellurium, tin, titanium, tungsten, uranium, vanadium, and zirconium.

China topped the list of exporters of nonfuel minerals to the U.S., followed by Canada. As noted in our Rare Earths MMI series, the U.S. — the whole world, in fact — is largely dependent on China for rare earths elements, as China controls most of the sector.

Unsurprisingly, when it came time for the Trump administration to roll out a finalized list of tariffs in September — $200 billion worth in tariffs on Chinese goods, in addition to the $50 billion worth of tariffs imposed earlier in 2018 — rare earths were left off the list.

While it certainly is not enough to counterbalance China’s dominance in the sector, the USGS report notes rare earth mining resumed in the U.S. last year for the first time since 2015, when Molycorp, owner of the Mountain Pass rare earths mine, declared bankruptcy. Mountain Pass, the U.S.’s only operating rare earths mine, was eventually sold to MP Mine Operations LLC for $20.5 million in 2017.

Minerals Production Up, Metal Mine Production Down

Breaking down U.S. mine production further, U.S. industrial minerals production came in at a value of $56.3 billion last year (up 7% from 2017), while metal mine production checked in at an estimated $25.9 billion (down 4% from 2017).

Crushed stone, construction sand and gravel accounted for 45% of industrial minerals production, at a value of $25.3 billion. Meanwhile, gold, copper, iron ore and zinc led the way in metal mine production.

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Other Highlights

A few other items of note from the USGS report:

  • U.S. imports of aluminum fell by an estimated 11% last year, as the U.S.’s Section 232 tariff on imported aluminum went into effect. Argentina and Australia were exempted from the duty (Argentina was tagged with a quota), while the tariff rate for Turkish aluminum doubled amid diplomatic tensions last year.
  • A New York zinc mine, last operational in 2008, reopened last year.
  • Twelve states produced more than $2 billion worth of nonfuel mineral commodities in 2018, according to the report. The list includes, in descending order: Nevada, Arizona, Texas, California, Minnesota, Florida, Alaska, Utah, Missouri, Wisconsin, Michigan and Wyoming.

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Before we head into the weekend, let’s take a look at the week that was and some of the metals storylines here on MetalMiner:

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  • The palladium price continues to soar, MetalMiner’s Taras Berezowsky explained in this month’s Global Precious MMI.
  • Rare earths miner Lynas Corp. is appealing a condition put forth by the Malaysian government related to the miner’s license renewal.
  • Stainless steel surcharges and LME nickel prices made gains this past month.
  • The copper price also trended upward last month, but it could be entering a sideways trend.
  • MetalMiner’s Stuart Burns writes about recession concerns in the U.S. and elsewhere, and signs pointing in that direction.
  • Several billionaires are backing a new startup that aims to find new sources of cobalt, using “statistical modeling, big data aggregation, and basic science” to improve methods of exploration.
  • ArcelorMittal’s resolution plan for the bankrupt Essar Steel Ltd. received approval from an Indian tribunal — but an additional challenge awaits, MetalMiner’s Sohrab Darabshaw explained.

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If you’re in the midwestern U.S., chances are your March has gotten off to a more-frigid-than-normal start.

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Not so for the Global Precious Monthly Metals Index (MMI), which has gotten even hotter.

The subindex tracking a basket of gold, silver, platinum and palladium prices from four different geographies shot up four more points to hit 98 for the March reading — a 4.3% increase — driven by a still-scorching palladium price that began its second month in a row higher than the gold price.

In fact, the U.S. palladium bar price, as tracked by the MetalMiner IndX, hit $1,522 per ounce on March 1. That level has never been seen in the history of the MMI series, which began in January 2012.

Forget your road salt or other de-icer — just throw some palladium on your slippery sidewalk, it should melt the ice in no time!

All of this is to say that the Global Precious MMI is now in a six-month uptrend.

Meanwhile, the U.S. platinum bar price rose slightly, but not nearly enough to eat into the spread with its sister platinum-group metal (PGM). The U.S. gold price faltered a bit, beginning the month at $1,312 per ounce (about $8 per ounce lower than last month). Silver prices also dropped across the four tracked geographies.

Palladium Market News and Notes

Last month, we reported that the global palladium supply shortage is still the top driver, with a shortfall of more than 1 million ounces this year and next as estimated by researchers Refinitiv GFMS, according to Reuters.

It looks as though Norilsk Nickel is getting on that forecast bandwagon as well.

Norilsk (also known as Nornickel), which produces 40% of the world’s nickel, said “in 2019 the global palladium market deficit is forecast at 800,000 ounces compared with 600,000 ounces in 2018, with consumption up by 500,000 ounces to 11.2 million ounces due to strong demand from autocatalyst producers,” according to a recent Reuters report.

“(The) spot palladium market practically dried out” in 2018, Nornickel is quoted as saying. According to the Reuters report, the company said the “supply tightness was partly eased by the release of stocks from palladium ETFs (exchange-traded funds), which fell below 1 million ounces for the first time since 2009, and from Nornickel’s Global Palladium Fund.”

Meanwhile, the World Platinum Investment Council said the global platinum market will see a surplus of 680,000 ounces in 2019 (after a surplus of 645,000 ounces in 2018), resulting from supply growth of 5%, which exceeds demand growth, according to a press release.

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All of this conspires to keep the platinum-palladium spread wider than ever.

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Gold is back in the news in India, the second-largest consumer market in the world.

Gold prices have been moving upward, buoyed by several conditions, since January.

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On Feb. 6, for example, retail gold prices touched approximately U.S. $461 (Rs 33,000) per 10 grams in Mumbai and over U.S. $474 (Rs 34,000) in Ahmedabad, nearing new all-time record highs. This was in contrast to prices in London, which held flat in U.S. dollar terms.

Gold prices globally on the same day held firm after U.S. President Donald Trump’s State of the Union address, but a firmer dollar stopped the bullion’s gains. Spot gold was steady at $1,314.30 per ounce in intraday trading. U.S. gold futures were also steady at $1,318.20 per ounce.

Any rise in consumption by India is welcome, as it will push up global prices currently near an eight-month high.

Gold analysts anticipate a rise in India’s gold demand this year. The World Gold Council (WGC) recently said prices could go above the 10-year average.

The WGC estimated consumption this year in India would go up to 750-850 tons versus 760.4 tons of last year, according to Somasundaram PR, managing director of WGC’s Indian operations, as quoted in The Economic Times.

If one were to look at the consumption data of the last decade, demand by Indian consumers has averaged 838 tons.

What may push up gold consumption is more purchasing power in the hands of Indians this election year, as the present government unveils policies with an eye on the polls.

Much of this growth is anticipated from the country’s rural sector. Almost all of India’s gold is imported, and this incoming movement has been affected by the Indian government’s efforts to restrain its trade deficit by measures to discourage investors who used gold to evade taxes.

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In addition to this being an election year, the wedding season is another reason for the spurt in gold buying.

Last month, we wrote that winter was apparently “just heating up” for the Global Precious Monthly Metals Index (MMI).

Turns out we were right.

 

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The subindex tracking a basket of gold, silver, platinum and palladium prices from four different geographies shot up four points to hit 94 for the February reading — a 4.4% increase — driven by a scorching palladium price that began the month higher than the gold price (both above $1,300 per ounce).

But that wasn’t the only driver.

The U.S. silver price, as tracked by our MetalMiner IndX, bumped above $16 per ounce, the first time it reached that level since July 2018.

Gold began the month sitting pretty at $1,320 per ounce. Meanwhile, the U.S. platinum price rebounded for the February reading after its January dip, ending up at $820 per ounce.

Let’s take a moment to take that in: platinum at $820, while palladium broke the $1,300 barrier to start February at $1,325 per ounce. That represents the most massive platinum-palladium spread ($505 separating the two) in favor of palladium in the history of MetalMiner’s Monthly Metals Index, which dates back to January 2012.

It’s also the 16th straight month of palladium holding a premium over platinum.

A palladium price correction? Nowhere to be seen so far.

Latest Palladium Price Outlook

Reuters polled 29 analysts and traders just before the beginning of this month on the palladium and platinum outlook, and while the former’s prices may stagnate in 2020, these next 11 months look to be the metal’s best ever.

“The median forecast was for prices to average $1,200 an ounce this year and $1,150 in 2020 – up from $1,027 last year and only $612 in 2016, but beneath current prices around $1,350 and the record high of $1,434.50 reached earlier this month,” according to the article.

What is Driving PGM Prices?

The global palladium supply shortage is still the top driver, with a shortfall of more than 1 million ounces this year and next estimated by researchers Refinitiv GFMS, according to Reuters.

However — automotive metaphor alert — the driver that could stall the palladium price craze is a marked slowdown in major global car markets.

Automotive sales in China fell last year for the first time in three decades, and the U.S. and E.U. automotive markets are bracing for more potential slowdowns amid economic growth concerns.

Will that happen in 2019? Much remains to be seen.

For now, it seems that if buyers are buying on the spot market and could stand to somehow substitute platinum for palladium in their industrial applications, it wouldn’t hurt to look into it.

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Key Price Movers and Shakers

The U.S. silver price bumped up 3.6% to sit above $16 per ounce.

Gold began the month at $1,320 per ounce, a 5.8% increase over its Jan. 1 level.

The U.S. platinum price rebounded for the February reading after its January dip, rising 3.3% and ending up at $820 per ounce.