Articles in Category: Precious Metals

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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.

Gold has been the metal to hold these last few months. While the base metals index has been at best trading sideways — and in many instances, gradually weakening — gold has been making a comeback.

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Even before Fed announcements in January 2019, gold had been rising during the second half of 2018, reaching a peak in January of over USD $1,320 per ounce (its highest level since May 2018).

CNBC quotes an ABN AMRO analyst who says “Supporting gold is the double whammy of lower dollar and the (Fed decision on) U.S. interest rates.”

It’s true to say there is an inverse relationship between the greenback and the price of gold; as the dollar falls, it makes dollar-denominated commodities like gold cheaper for foreign investors and the price tends to firm. In addition, if interest rates weaken, the gold price can firm as lower interest rates reduce the opportunity cost of holding non-interest-earning gold.

The Fed’s decision not to raise rates — with “weakened” economic conditions as the justification for putting rates on hold — is a position the market now sees extended well into 2019 (not only reduced interest rate expectations, but the value of the dollar).

SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, was at the highest price since June, according to Reuters, climbing 4.6% so far this month. That gain marked the biggest monthly gain since September 2017.

But investor interest has not been the only driver of demand.

In an effort to diversify out of dollar holdings, central banks — particularly emerging-market central banks — have been selling U.S. Treasuries and buying physical gold.

According to the Financial Times, central bank buying of gold reached its highest levels for almost half a century last year as Russia, Turkey and Kazakhstan led combined central-bank purchases of a net $27 billion worth of gold after sales by Australia, Germany, Sri Lanka, Indonesia and Ukraine, which sold a combined 15.6 tons are deducted.

Russia was by far the largest buyer, adding 274.3 tons last year, bringing official gold reserves to 2,066 tons, worth some $87 billion. At this level, Russia holds some 18% of its total reserves in gold. But if that sounds like a lot, compare it to Germany at 69% and the U.S. at 74%.

All these central banks have been selling dollars to fund their purchases, a move that has seen the greenback as a share of central bank reserve currencies fall to a five-year low in Q3 last year. Some eastern European countries joined the buying spree, making this year’s net purchases the highest since the U.S. moved off the gold standard in 1971, Reuters noted.

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There is nothing to say this has run its course. Heightened trade uncertainty and slowing global growth will continue to create favorable conditions for gold demand, both from investors and central banks, in 2019.

In times of uncertainty, gold has not lost it role of safe haven.

It looks as though the winter is just heating up for the Global Precious Monthly Metals Index (MMI).

The sub-index tracking a basket of gold, silver, platinum and palladium prices from four different geographies rose three points to hit 90 for the January reading — a 3.4% increase — driven by a still-hot palladium price.

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The U.S. palladium bar price broke the 1,200-per-ounce barrier to start the month, ending at $1,252 per ounce to begin 2019. That represents a three-month uptrend. Meanwhile, the gold price reclaimed its premium over palladium, settling at $1,282 per ounce to begin the month.

U.S. silver also rose, while platinum dropped in the U.S. and Japan.

Palladium Outlook Looking Even Better With Hybrid Vehicle Demand

As we wrote last month, while supply from major producers including Russia and South Africa is not growing, global automotive palladium demand is expected to achieve a new record high in 2018 of around 8.5 million ounces, according to precious metals consultancy Metals Focus as reported by Reuters.

That conspires for the high price bubble of the formerly junior PGM of late. However, that may not last.

“This increases the potential for correction,” Commerzbank is quoted as stating in a recent outlook report. “We expect a price correction [for palladium] to begin in the course of the first quarter of 2019.”

After correcting, the bank expects the price should to “resume its upswing,” forecasting a price of $1,100 per troy ounce by the end of 2019, it is quoted as saying.

Other analysts agree with that general take, but that doesn’t mean that the longer-term demand outlook isn’t still strong.

According to Anton Berlin, head of analysis and market development at Norilsk Nickel PJSC, as quoted by Bloomberg, “combined palladium use in hybrid and plug-in hybrid — or rechargeable — vehicles next year will be nearly triple that of 2016.”

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Analysts at JPMorgan Chase & Co. agree. “Hybrids are forecast to grow from just 3 percent of global market share in 2016 to 23 percent of sales by 2025,” stated a late-2018 report by the bank, according to Bloomberg.

MetalMiner’s precious metals index, tracking a basket of platinum, palladium, gold and silver prices in several geographies across the globe, is now officially in a three-month uptrend this December after several months of declines.

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The Global Precious Monthly Metals Index (MMI) came in at a value of 87 for its December 2018 reading, up 2.4% from 85 last month, continuing a steady upswing. To wit, this past September’s value — 81 — was the sub-index’s lowest point since January 2017.

The U.S. palladium bar price, as tracked by the MetalMiner IndX, keeps steamrolling higher. Itself in a four-month uptrend, that price clocked in at $1,192 per ounce at the beginning of the month, with reports that during the past 30 days, palladium actually outpriced gold for the first time in 16 years.

Meanwhile, platinum reversed its uptrend from last month, landing lower at $806 per ounce. This widens the platinum-palladium spread even further, forcing many analysts to wonder what will happen in 2019.

2019 PGM Outlook

The World Platinum Investment Council (WPIC)’s latest quarterly report contained some bad news for platinum producers — but potentially good news for buyers.

Read more

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

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MetalMiner’s Global Precious Monthly Metals Index (MMI), tracking a basket of platinum, palladium, gold and silver prices in several geographies across the globe, is now officially in a two-month uptrend this November after several months of declines.

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The Global Precious MMI came in at a value of 85 for its November 2018 reading, up 2.4% from 83 last month, continuing a steady upswing (the sub-index’s level this past September had not been seen since January 2017).

The U.S. platinum bar price sustained its own bounce-back with another spike this November. As my colleague Fouad Egbaria mentioned earlier this week, the platinum-palladium spread narrowed slightly this past month. U.S. platinum bars rose 2.6% to $835/ounce, while palladium bars fell 0.3% to $1,067/ounce.

Notably, platinum continues to stay above the $1,000 per ounce threshold, which is quite significant.

Palladium Looking Up

A couple weeks ago, palladium hit a record high — so high, in fact, that it nearly achieved parity with the gold price, something for which the platinum price has usually been in the running as the lead candidate … but not lately.

The U.S. gold price, as tracked by our MetalMiner IndX, gained slightly over last month to begin November at $1,214 per ounce.

As we’ve been continued to report in this monthly column, “a combination of factors, from tight supplies and large deficits to resurgent interest from speculative investors, has kept the platinum group metal (PGM) on the boil,” as a recent Reuters piece put it.

However, more specifically it looks as though geopolitics have been in play.

According to Reuters, fears that Russia “could restrict supplies in response to the United States’ plans to withdraw from the Intermediate-Range Nuclear Forces Treaty,” as well as the promise that a recent economic stimulus package in China will inject life into the auto markets, has contributed to spiking palladium prices.

Speaking of the auto markets, when it comes to the U.S. automakers, the platinum-palladium price differential has got analysts using the “S” word: substitution.

But even with the sustained reversal in the price relationship, car companies such as General Motors won’t be rushing to swap the two materials anytime soon.

“It’s not a flick of a switch for us,” Rahul Mital, global technical specialist, diesel aftertreatment at General Motors, said in a panel discussion at a London Bullion Market Association meeting in Boston on Monday, as quoted by Bloomberg.

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“Any time you want to make a substitution like that, it is at least 18 months to a two-year cycle if we’re going to switch. We have to be careful that by the time we do all that, price changes don’t negate the benefits,” Mital was quoted as saying.

Platinum’s Tail Already Between Its Legs

According to a different Reuters article citing a poll carried out by the news service, palladium’s price premium over platinum “will widen next year, with palladium set for its best year on record while platinum slumps to its worst performance since 2004.”

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Palladium is expected to average at $993/ounce this year, and $1,025/ounce next year, while platinum is expected to be averaging $882/ounce in 2018 and $875/ounce in 2019, according to the experts and analysts polled in the article.

We’ve touched on conflict materials in this space before, typically in reference to cobalt. A majority of the world’s cobalt is mined in the Democratic Republic of the Congo, where conditions at so-called artisanal mines (i.e., small-scale mines) are sub-standard, according to reports by a variety of NGOs.

Among the concerns at these mines includes a lack of regulation, which in some cases leads to extremely unsafe working conditions and the use of child labor.

Amnesty International last year released a report in which a number of big-name companies came in for criticism with respect to their cobalt supply chains.

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Yesterday, we cited a recent report by the Enough Project on cobalt and murky supply chain ethics.

Meanwhile, over at MetalMiner’s sister site, SpendMatters, you can find a similar report on the supply-chain issues related to gold — that is, conflict gold passing through some big-name companies en route to the U.S. market.

The SpendMatters piece cites an October study by The Sentry, which is an initiative of the Enough Project and Not On Our Watch Now (NOOW).

Documents reviewed and interviews carried out by The Sentry, a team of policy experts and financial auditors co-founded by George Clooney, raise concerns that the corporate network controlled by Belgian tycoon Alain Goetz, director at the Belgian gold refinery Tony Goetz N.V., has refined illegally smuggled conflict gold from eastern DRC at the African Gold Refinery (AGR) in Uganda and subsequently exported it through a series of companies to the U.S. and Europe. The study lists companies like Amazon, General Electric and Sony as possibly being ones that conflict gold may have been sold to.

The Sentry’s study can be found here.

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Read the full SpendMatters piece here.

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Festival season in India normally means one thing: a rush to buy gold.

Outside of China, India sees the most amount of gold buying when Indians are, well, happy or enjoying a moment — be it a party, a wedding or a festival.

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But this festive season, starting from around the beginning of October, gold buying has not picked up at the pace one it used to.

Reports are coming in that Indians are not flocking to jewelry stores as they normally would for a couple of reasons – an increase in the price of domestic gold and the increasing value of the U.S. dollar versus the Indian rupee.

At the first marker of this season, that is Dusshera, when buying the yellow metal is considered auspicious, demand was down between 20-40% in some places, as compared to the same period last year, according to a Reuters report.

Of course, demand was better compared to some of the previous months, but it has not been as high as it was last year, according to Nitin Khandelwal, chairman of the All Indian Gems & Jewellery Domestic Council, as quoted by Reuters.

Much of the demand for “festival” gold comes from rural India. This year, that sector is lagging, partly because of failure of the monsoon in many parts. A good monsoon means a bumper crop, which translates into better buying of the bullion during the festival time. Even discounts of about U.S. $8 an ounce failed to pull in the crowds.

The next milestone is the Indian festival of lights, Diwali.

While some retail jewelers are optimistic of an increase in pickup, others are keeping their fingers crossed. The price of gold continues to soar, touching Rs 32, 350 (about U.S. $442) per 10 grams as of Oct. 23.

Gold plays a major role in the Indian economy. Previous studies have pegged India’s gold stock at around 24,000 tons, mostly held by the average Indian. Its value, at today’s rates, reaches about U.S. $800 billion.

The last quarter of the year is the season of peak demand, with Indians buying almost 240 metric tons on average in the past four years, according to the World Gold Council.

This year, Dhanteras — one of the most auspicious days for Indians to buy gold — falls on Nov. 5 and will be followed by Diwali.

Both retailers and bullion analysts say that if things on the ground do no improve by then, the trend seen during Dusshera will follow into Diwali.

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Gold futures at India’s Multi Commodity Exchange of India Ltd. are up by over 10% this year, the highest since July 2016.

The rupee, on the other hand, is at its lowest standing versus the dollar in 16 years. Ask any bullion dealer or retailer and the market rule of thumb is that rising prices always bring down sales.

Going by the way things are on the ground at the moment, chances of things changing dramatically for the better by the first fortnight of November seems like a far-off dream.

MetalMiner’s precious metals index, tracking a basket of platinum, palladium, gold and silver prices in several geographies across the globe, bounced back in October after several months of declines.

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The Global Precious Monthly Metals Index (MMI) registered a value of 83 for its October 2018 reading, up 2.5% from 81 last month, stanching the bleeding — last month’s level had not been seen since January 2017.

The U.S. platinum bar price had its own bounceback after having dropped last month. Platinum rose to $814 per ounce, up from $777 per ounce in September. However, U.S. palladium bar built up a two-month upward price trend by breaking the $1,000 per ounce level for the first time in eight months, rising to $1,070 per ounce.

This extends palladium’s historic premium to platinum for yet another month.

Palladium Bubble?

John Dizard, writing in the Financial Times, contends that platinum’s once-cheaper cousin is ripe for the bubble it seems to be creating.

“The best investment bubble propositions incorporate the familiar and the incomprehensible,” he writes.

The largest single application for palladium, as MetalMiner readers well know by now, is to help convert toxic gases within catalytic converters. “Therefore, we have something familiar to investors (cars) and something incomprehensible (the physical chemistry of catalytic converters) — perfect conditions for a bubble,” Dizard concludes.

Much of the bubble conditions can be explained by “Dieselgate” — read about it in the full article (paywall) — but speaking of palladium bar prices, as we were just a bit ago, those aren’t what auto buyers should really be tracking: sponge is where it’s at.

“Could it be that the automakers will run into a supply squeeze and be forced to buy palladium bars of the sort represented by Nymex futures? Not exactly,” Dizard writes. “The automakers actually buy a semi-manufactured product called ‘sponge’, which is palladium (or platinum) particles used to coat a ceramic matrix inside the emissions system. There is a separate, over-the-counter market for palladium sponge.”

Ultimately, “if you follow the quotes for palladium sponge, you can see whether the ‘sponge premium’ over the price of bar metal indicates a real shortage of the industrial product,” according to Dizard.

Gold Supply Chain in South America: Treacherous

We recently came across a recent white paper entitled Illegal mining in South America and financial risk – Taking the shine off gold, co-authored by Jesse Spiro and Brian Huerbsch.

Evidently, the promise of huge profits based on higher gold prices – and fueled by rampant corruption — have created a continentwide supply chain problem. According to the authors, the issue plagues Colombia, Peru, Bolivia, Brazil, Ecuador and Venezuela.

The core of the problem is a major risk for gold-buying organizations — the ongoing threat of murky supply chain traceability.

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You’ll be able to read more about it, including our breakdown of what gold-buying companies should do to mitigate risk, later this week on our sister site, Spend Matters.