Articles in Category: Precious Metals

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Before we head into the weekend, let’s take a quick look back at the week that was here on MetalMiner:

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  • This week we wrapped up the latest round of posts for our January Monthly Metals Index (MMI) — check out this week’s posts on the following:
  • Oil and gas exploration is a topic that has both passionate supporters and detractors. President Trump’s recent proposal to open up new areas for drilling, not surprisingly, has both of those, as our Stuart Burns wrote earlier this week.
  • Sticking on the subject of oil, Burns surveyed the factors behind crude oil’s continuing rise in price. Political turmoil is one factor, among others, contributing to the increase.
  • The long wait is over … Secretary of Commerce Wilbur Ross has sent President Trump his Section 232 steel report (the statutory deadline was Jan. 15). Trump now has 90 days to decide what to do. A similar announcement for the Section 232 aluminum probe — which was launched last April, one week after the steel probe — should also be coming soon.

Here’s What Happened

  • Our Global Precious Monthly Metals Index (MMI), tracking a basket of precious metals from across the globe, rose yet another three points to 90 for the January reading, a 3.4% increase.
  • We’re officially in a three-month rising trend for our precious metal sub-index. The last time we saw this buildup was back in Q3 2017, after which the index retreated. If that pattern holds, we could see a drop-off, perhaps as early as February — although seasonality and the global political and economic atmosphere in Q4 both likely had a lot to do with the outcome, which may not be replicated here in Q1 2018.
  • Palladium officially busted through the $1,000 per ounce ceiling in December, and there were no signs of a turnaround for the January reading — the PGM per-ounce held above that level for the second straight month. (More on palladium below.)
  • Meanwhile, it appears as though platinum will need to take advantage of a “Dry January.” The metal came out of the holidays very sluggish, recording only a $2 per ounce increase and beginning the new year in a rather flat state of malaise.
  • “We’ve (still) got a trend, folks!” — this is the fourth straight month in which palladium is priced at a premium to platinum, which has not been the historical norm.
  • And then there’s gold. After breaking and holding above the $1,300 per ounce threshold at the beginning of September for the first time since October 2016, the U.S. gold price is back above that benchmark after a few months off.

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What’s Going On in the Background?

  • Can palladium keep rising? That all depends. On the one hand, the supply market is pretty tight, and it has been for a while. In fact, the palladium market has been in deficit for the last six of seven years in which data is available, according to a good Reuters piece published just after the new year. On the other hand, the primary thing driving palladium demand, and therefore prices, is mainly Chinese automotive demand. Caveat: if that slows down or even goes in reverse (car puns are just the best, aren’t they?), palladium could go with it. As we reported earlier this week, a Wall Street Journal story pointed out Chinese consumers are now starting to get into used car sales even more, which could portend the end of unmitigated new car sales growth — much like China’s GDP cooldown over the last few years. To wit, here’s a sweet graphic showing the relationship between palladium and China’s automotive sales:

Source: Thomson Reuters

  • Germans buying up some gold. Regarding that $1,300/ounce threshold we mentioned earlier that gold prices have been hovering above for a couple months straight? That has helped spot gold prices gain about 14% during 2017. Now, at least one nation — going by its recent investment activity — is hoping that upward trend continues. According to another Reuters article, Deutsche Boerse said its Xetra-Gold notes rose in demand to a record 175 tons of gold, a nearly 50% increase over 2016. Safe haven, here we come! (Ja?)

What Metal Buyers Should Look Out For

  • PGMs. While ETF Securities, an investment and intelligence firm, which we used to cover quite regularly, expects precious metals (including PGMs) to remain pretty stable for the course of 2018 in its Outlook 2018 report, as we noted last month, keep a close eye on All Things China. This is especially important as it pertains to automotive partnerships between U.S. OEMs and China and the resulting innovation, as my colleague Fouad Egbaria reported earlier this week in our Automotive Monthly Metals Index (MMI).
  • ICYMI, our own Irene Martinez Canorea drilled down into the gold markets before the end of 2017 from an analytical perspective, ultimately unlocking the reason why industrial metal buyers (especially those buying copper) should pay attention to gold.

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Gold has defied interest rate rises and record equity markets to rally to its highest level in more than three months, the Financial Times reported this week.

Rising more than 6% since early December to over $1,300/ounce — its highest level, the paper reports, since September 2015.

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Gold is normally considered a safe-haven asset and a store of wealth in times of financial stress and uncertainty. So, why the surge in demand?

Performance of the U.S. Dollar

The U.S. and Europe are both expanding and emerging market growth is set to top 5% this year. One theory is the weakness of the U.S. dollar — as the dollar falls, all commodities priced in the currency become relatively cheaper and therefore more attractive to buyers in other currencies.

The dollar has been the worst performer of the G10 currencies in 2017, falling some 10% over the year. Investors also have expectations of higher inflation in the U.S. due to President Donald Trump’s tax reforms and a rising oil price, which often stokes inflation is seen by some as a risk. But while the dollar is attributed with the majority of the rise in gold, it may not be the whole story.

Read more

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This morning in metals news, Chinese steel futures start the year on the right foot, the automotive sales outlook for 2018 is not quite as bright as it has been in recent years and gold reaches a three-month high.

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Chinese Steel Futures Start ’18 Strong

Chinese steel futures started the year on the right foot, according to a Reuters report.

With that said, the report cites concerns about consumption levels of the metal going forward, particularly as the winter season sees construction activity slow down in China.

Outlook for Auto Sales Less Positive

After a record 2016 and strong 2017 in automotive sales, it wouldn’t be surprising to see the market take a step back in 2018.

According to Bloomberg, higher interest rates could dim the prospects of the automotive market in 2018.

Good as Gold

Gold, meanwhile, hit a three-month high on the heels of a solid December, Reuters reported.

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According to Reuters, the metal rose 4.4% in the last three weeks of 2017, with prices eclipsing the $1,310/ounce mark.

We’re another month closer to the end of the calendar year, and there’s much to recap from the last month in metals.

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After four MMIs ticked upward for our November reading, five did so for our latest report.

Hitting some of the high points:

  • The biggest winners of the month were the Automotive, Construction and Raw Steels MMIs. Automotive picked up four points, while Construction and Raw Steels picked up five points apiece.
  • The Aluminum MMI tracked back down, losing four points after a five-point rise the previous month. As Irene Martinez Canorea wrote, a dropping LME aluminum price had much to do with the sub-index’s drop.
  • The Stainless MMI, meanwhile, fell five points on the month. In this case, a 10% decline in nickel prices contributed to the MMI’s fall. Trading volume for LME nickel is still strong, Martinez Canorea wrote, and the outlook for nickel remains bullish.

You can read about all of the aforementioned — and much more — by downloading the December MMI report below.

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This morning in metals news, Wisconsin Gov. Scott Walker signed a bill ending the state’s moratorium on gold and silver mining, Chile approaches a busy year for mine union negotiations, and Chinese steel futures drop.

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Going for the Gold in the Badger State

Wisconsin Gov. Scott Walker signed a bill ending the state’s moratorium on gold and silver mining, Wisconsin Public Radio reported.

The moratorium was imposed in 1998, when Walker was a member of the state Assembly.

Union Negotiations on the Horizon in Chile

Chile’s copper mining industry has a busy schedule next year, with 32 union contracts on the docket, Bloomberg reported.

Chile, a dominant force in the copper industry, will negotiate the contracts, which represent approximately 75% of the country’s copper output, according to the report.

China Steel Futures Drop

Chinese steel futures took a dip Tuesday as a result of concerns regarding demand in the country, the world’s top steel consumer, according to Reuters.

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According to the report, upward price movement driven by supply constriction is expected to be counterbalanced by a drop in demand as winter weather affects construction projects.

The Rare Earths MMI took a three-point drop for the month, falling to 18 for our December reading. 
Save for an 11-cent increase in the Chinese yttrium price, the heavier hitters in this basket of metals  — terbium oxide, neodymium oxide, europium oxide and dysprosium oxide — posted price drops.

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Australian Rare Earths Miner Makes a Comeback

An article by Forbes chronicles the major bounceback of Australian rare-earths miner Lynas Corp., which rebounded after losing 99% of its share price.

The reason for the revival? The electric-car wave and environmental cleanup efforts in China, the Forbes article reports.

Surviving an oversupplied market that saw rare-earths prices plummet in recent years, a tightening of the market by China — the dominant global producer of rare earths — saw the firm’s fortunes reverse.

“Lynas, a former gold miner, somehow survived, and today it’s enjoying a rerun of the rare-earths shortage as China’s tougher pollution laws and the growing popularity of electric cars are boosting prices,” Forbes reports.

Namibia Rare Earths Acquires Portfolio of Metal Properties

In other recent news, Namibia Rare Earths announced in November the acquisition of a portfolio of critical metal properties in Namibia.

According to a release from the firm, it agreed to acquire a “majority interest in seven projects ranging from exploration opportunities to near term feasibility stage” from Gecko Namibia (Pty) Ltd.

“The Gecko Namibia portfolio of properties will expand the Company’s commodity base from solely rare earths to a variety of highly critical commodities including cobalt, copper, zinc, lithium, graphite, tantalum, niobium, nickel, and gold,” the release continues. “Ground holdings in Namibia will increase from 221 km2 (Lofdal) to over 6,850 km2.”

Instability, Violence in Congo

The Democratic Republic of Congo is rich with rare-earths, like cobalt, used in things like computers, cellphones and electric car batteries.

However, political instability and violence in the country this year have understandably had significant effects on the rare-earths market in the central African country. (Of course, as has been mentioned in this space before, the market effects of the instability and violence is not the primary takeaway of these events, but is relevant insofar as we are talking about metals.)

Recently, at least 14 United Nations peacekeepers were killed after an attack in the eastern portion of the country Friday, the Washington Post reported.

In a statement Friday, U.N Secretary-General António Guterres condemned the attack, saying it constituted a war crime.

“This is the worst attack on UN peacekeepers in the Organization’s recent history,” Guterres said.

While the price of metals is a small consideration compared with the bloodshed in the country this year — in August, the U.N. reported approximately 250 people were killed in ethnic-based massacres — instability and violence certainly have an effect on production capabilities and, thus, metal prices for rare earths mined in the DRC (like cobalt).

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Actual Metal Prices and Trends

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Here’s What Happened

  • MetalMiner’s Global Precious MMI, tracking a basket of precious metals from across the globe, ticked up another point to 88 for the December reading, a 1.1% increase.
  • Palladium flexed its muscles, officially busting through the $1,000 per ounce ceiling. The platinum-group metal’s (PGM) U.S. bar price has jumped nearly a whopping 50% since the beginning of the year.
  • Platinum crept closer to palladium’s level over the last month, ending up in the mid-$900s per ounce level. It has receded from its most recent high of March 2017, when it landed above $1,000 per ounce.
  • “We’ve got a trend, folks!” — this is the third straight month in which palladium is priced at a premium to platinum, which has not been the historical norm.
  • After breaking and holding above the $1,300 per ounce threshold at the beginning of September for the first time since October 2016, the U.S. gold price has been dropping for a couple months before leveling out for Dec. 1. Gold bullion is just about $4 per ounce higher than it was at the start of November.

What’s Going On in the Background?

  • Why has palladium been trading at a premium to platinum? A reminder: “Palladium has traded at a discount to platinum because of platinum’s greater cost of extraction and its wider scope of applications,” according to Stuart Burns, MetalMiner’s editor at large. But the fall of diesel (compared to gas) engines has bumped up palladium demand — which, coupled with anticipation of both palladium and platinum production falling, according to analysts from UBS and SP Angel, paints a picture of potentially sustained higher prices. For now, heading into the winter holidays, the current trend is making palladium investors feel pretty good.
  • Gold in the spotlight. Let’s pivot to gold a bit this month. A gold mine in Ireland is causing some controversy amidst the background of Brexit, with greater numbers of potential jobs and environmental impact all hanging in the balance.

What Metal Buyers Should Look Out For

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This afternoon in metals news, the U.S. renewable energy industry has reason to worry about the Republican tax proposal, union members at the Quebrada Blanca copper mine in Chile move closer to a strike, and precious metal prices fall.

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Renewables Market Pushes Against BEAT Tax

While the Republicans’ latest attempt at an overhaul of the U.S. tax system is receiving the usual praise and criticism, the renewable energy sector is concerned – and understandably so. As Dino Grandoni explains in the Washington Post, the bill may inadvertently end investment in wind and solar energy.

Currently, many companies have large multinational corporations finance wind or solar energy projects, and in return, give the latter the renewable energy credit that the government provides. But these credits may be cancelled out as part of the base erosion anti-abuse (BEAT) tax, which is meant to discourage multinationals from moving profits abroad.

According to the American Wind Energy Association’s Peter L. Kelley, the BEAT tax – if it is not amended to exempt renewables credits – could put an end to more than half of the country’s wind projects.

Strike Brewing at Quebrada Blanca Mine

A quarter of the workforce at the Quebrada Blanca copper mine in Chile moved closer to a strike, as the 106-member union rejected Canadian miner Teck Resources’ contract offer on Wednesday, Reuters reports. Ninety-six percent of the union voted to reject the offer and strike, said the president of the union. Read more

Gold prices seem to be moving sideways after prices peaked in September.

Gold prices followed similar patterns to other base metals (such as copper and nickel), and rallied during Q3. We might expect to see price pullbacks after volatile bullish runs.

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Gold spot prices. Source: MetalMiner analysis of FastMarkets

Gold and the U.S. Dollar

U.S. dollar-price movements heavily impact gold; the weaker the dollar, the stronger the gold price.

The U.S. dollar has appeared weak since the beginning of this year, while gold prices have risen. This suggests a negative correlation.

Gold-Continuous Contract price in orange. U.S. dollar in black. Source: MetalMiner analysis of StockCharts

In the chart above, both gold and U.S. dollar prices appear in the upper half of the chart. The black line at the bottom reflects the correlation between the U.S. dollar and gold prices. Both correlate negatively, which supports our previous statement.

A weaker U.S. dollar will help boost gold prices. Moreover, the correlation value falls between  -0.70, and even closer to -1. Therefore, gold and the U.S. dollar have a strong negative correlation, and the U.S. dollar serves as a reliable indicator for gold.

However, at certain times the correlation appears positive.

In July 2016 and July 2017, both the U.S. dollar and gold prices traded together. This tells us that the negative correlation doesn’t always provide clues as to gold prices.

S&P 500 Supporting the Bulls

Stock markets also shed light on metals markets.

Even though increasing stock markets do not necessarily equate to booming metal prices, they do suggest confidence in the overall economy. The S&P 500 currently trades at its historical levels, even in uncharted territory.

S&P500. Source: MetalMiner analysis of StockCharts

A rising stock market reflects investors’ positive sentiment with respect to the economy. The S&P 500 has increased by 15% so far this year. A better economic performance may lead traders to put their money in commodities, which will support the rally in base metal and precious metal prices.

Chinese Stock Market

The Chinese FXI index reflects an expansion in that economy.

Even though the FXI index has fluctuated more than the S&P 500 during the last five years, the uptrend that began in 2016 appears sustainable (at least for now).

FXI Source: MetalMiner analysis of StockCharts

Long-Term Relationship: Copper and Gold Prices

Readers might be asking: how can I relate gold prices to base metals strategy?

The answer is simple: copper and gold have traded historically in the same trend. Both gold and copper prices are currently in a long-term uptrend.

Gold-Continuous Contract price in purple. Copper in black. Source: MetalMiner analysis of StockCharts

However, a couple of divergences took place at the beginning of 2016 and at the end of the same year.

Gold prices rallied at the beginning of 2016, while copper prices increased (but by a smaller amount). At the end of 2016, copper prices rallied and gold prices dropped. They recovered afterwards, continuing its uptrend together with copper.

What This Means for Industrial Buyers

Industrial metal buyers may want to consider gold price trends as an additional indicator at which to look.

Currently, stock markets are signaling a continuation of a commodities bullish market, as well as a healthy economy in U.S. and China. Therefore, buying organizations may want to understand how and when to buy to reduce their costs.

Free Sample Report: Our Annual Metal Buying Outlook

Buying dips are reflected in our Monthly Outlook and a long-term analysis for every base metal and steel forms in our free Annual Outlook.