Articles in Category: Precious Metals

The Global Precious Monthly Metals Index (MMI) picked up one point this month for an August MMI reading of 102.

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Time for Safe Havens

Amid the latest jolt of trade uncertainty — namely, President Donald Trump’s intention to impose a 10% tariff on an additional $300 billion in Chinese goods — safe-haven metals prices have increased.

Gold, for example, last week moved over $1,500 per ounce for the first time in six years, Reuters reported, while silver prices have also gained momentum.

Demand for gold in the first half of the year was strong, according to the World Gold Council, rising 8% on a year-over-year basis. The demand was largely powered by central bank buying and a rise in holdings of gold-backed ETFs, according to the World Gold Council.

“June was a big month for gold,” said Alistair Hewitt, head of market intelligence for the World Gold Council. “The price broke out of a multi-year trading range to hit a six-and-a-half year high and gold-backed ETF assets-under-management grew by 15% – the largest monthly increase since 2012. While the Fed’s dovish turn was a key driver for this, it also builds on a strong H1 which saw gold demand hit a three-year high, underpinned by extremely strong central bank buying. But we also saw an uptick in sales at an individual level as investors took advantage of June’s price rally to lock-in profits; jewellery recycling and retail bar and coin liquidations both rose.”

Meanwhile, silver — which had been a bit undervalued — posted its largest daily increase in over three years last week, bringing silver above the $17 per ounce mark.

Platinum-Palladium Spread Narrows

The palladium price retraced this past month while platinum picked up, narrowing the spread that has built up over the last over a year and a half.

However, that narrowing could be a blip on the radar in terms of performance throughout the rest of the year.

According to a Reuters poll, palladium’s premium over platinum is expected to hit an average of $609 per ounce this year and $595 per ounce next year.

Actual Metal Prices and Trends

The U.S. silver ingot/bar price rose 6.2% month over month to $16.23 per ounce as of Aug. 1. U.S. gold bullion rose 0.3% to $1,413.40; however, as noted above, the Trump administration’s tariff announcement sent the gold price past the $1,500 per ounce mark.

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Chinese gold bullion rose 2.1% to $45.88 per gram.

U.S. platinum bars rose 3.4% to $862 per ounce. U.S. palladium bars fell 1.1% to $1,500 per ounce.

A recent article in the ever insightful Stratfor Worldview this month underlines how the world is not short of copper ore deposits — they are, at least in this example, just in the wrong place.

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The article covers a long-running dispute between the Pakistani government and mining company Tethyan Copper Co., a joint venture between Canada’s Barrick Gold Corp. and Chile’s Antofagasta PLC, the article explains.

The dispute is over the legality of Tethyan’s claim and rights to exploit the copper and gold reserve at Reko Diq in Pakistan’s remote southwest Balochistan province, close to the Iran border.

Pakistan’s mining rights and practices, not to mention its infrastructure, are not fit for the purpose, as Tethyan’s story underlines all too well.

Rights were originally granted to BHP by way of a decades-old pact called the Chagai Hills Exploration Joint Venture Agreement (CHEJVA), signed in 1993 between the Balochistan Development Authority and the Australian miner. The rights were subsequently acquired by Tethyan, which has been in a long-running dispute ever since.

The company has invested some $220 million in exploration to prove the resource and carry out feasibility studies. However, probably in a bid to wring more out of the firm, legal challenges were taken to the provincial courts. The resulting legal proceedings caused delays, which finally drove the firm to take the case to the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) and the International Chamber of Commerce, resulting in a $5.9 billion fine against the Pakistani authorities.

The current impasse is in neither party’s interests.

Tethyan has offered to negotiate a settlement, but with the Chinese on the sidelines bidding to extend their Belt and Road involvement in the region, conflicting loyalties and priorities are in play.

A solution, though, would be very much in Pakistan’s interests.

The resource is said to be the largest untouched deposit in the world, containing an estimated 2.2 billion metric tons of mineable ore that could yield 200,000 metric tons of copper and 250,000 troy ounces of gold annually for over half a century, Stratfor reports.

But exploiting it requires international expertise and finance.

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The ore must be processed into a fine powder at the mine head before converting it into a slurry concentrate for transport through a 682-kilometer pipeline to the Arabian seaport of Gwadar. At the port, the company planned to dry the concentrate before loading it onto ships for smelting abroad — missing an opportunity to value add to refine it into pure metal.

The Global Precious Monthly Metals Index (MMI) picked up eight points, rising for a July MMI value of 101.

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The U.S. Dollar and Precious Metals

This past month, MetalMiner chatted with Americas Silver Corporation CEO Darren Blasutti to talk about the precious metals market.

In an analysis, MetalMiner’s Belinda Fuller noted the U.S. dollar still reigns supreme as the world’s reserve currency, despite speculation that the yuan could eventually overtake it.

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

“U.S. and Chinese gold bullion prices, as seen in the chart above, move closely together,” Fuller explained. “Meanwhile, they both tend to move inversely against the dollar.

“In other words, as the dollar gains strength, gold prices grow weaker in both countries.

“The yuan fluctuates more widely against the dollar, with little apparent impact on gold prices.”

As with other metals, gold price are inversely correlated with the U.S. dollar. The U.S. dollar fell to just under 96 on June 24, but has since gained momentum, rising to 97.50 as of Tuesday afternoon.

The gold price dropped in late June amid the dollar’s recent surge. It picked back up, however, before dropping again early this week.

Amid slumping silver prices, Americas Silver Corporation has shifted some of its focus to gold, in addition to lead and zinc. Blasutti noted the company is keeping higher-grade silver in the ground, for now, until silver prices experience a resurgence.

“When silver does come back, we can increase ounces quite dramatically on the silver side,” Blasutti said.

The company acquired the Relief Canyon Mine in Nevada, where it expects to begin gold pouring later this year.

“Part of the impetus to get back to precious metals was to get a commodity that we thought had less volatility,” Blasutti said. “Gold has shown to have less volatility in the last period, much more than the base metals. Base metals traded in a range and gold has traded in a range, but the range hasn’t been severe [for gold].”

In other news, market watchers are anticipating testimony from Federal Reserve Chairman Jerome Powell before the House of Representatives on Wednesday, particularly with respect to any commentary regarding potential interest rate cuts after hikes late last year.

Powell has come in for repeated criticism from President Donald Trump for the Fed’s rate hikes. This week, Larry Kudlow, the National Economic Council director, called the rate hikes “unnecessary,” CNBC reported.

The Palladium-Platinum Spread

Elsewhere in the index, the spread between palladium and platinum widened once again, this month to $682/ounce.

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The palladium price soared to its highest level since March, hitting $1,516 per ounce as of July 1. Meanwhile, the platinum price also rose, but more modestly.

Actual Metal Prices and Trends

The U.S. silver price ticked up to $15.29/ounce as of July 1, marking a 3.5% month-over-month increase.

U.S. platinum bars rose 1.7% to $834/ounce. U.S. palladium bars surged 15.8% to $1,516/ounce.

Chinese gold bullion jumped 4.7% to $44.95/gram, while U.S. gold bullion rose 6.3% to $1,408.90/ounce.

Several years ago, analysts and mainstream publications once speculated the yuan would eventually replace the U.S. dollar as the world’s reserve currency.

But with most commodities still priced in U.S. dollars, especially oil, the U.S. dollar has remained the world’s reserve currency.

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The U.S. dollar is also a key currency in the precious metals market.

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

U.S. and Chinese gold bullion prices, as seen in the chart above, move closely together. Meanwhile, they both tend to move inversely against the dollar.

In other words, as the dollar gains strength, gold prices grow weaker in both countries.

The yuan fluctuates more widely against the dollar, with little apparent impact on gold prices.

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

Here is a more typical look at the relationship between U.S. values, with gold priced per ounce, which clearly shows the inverse price relationship.

MetalMiner recently caught up with Americas Silver Corporation President and CEO Darren Blasutti regarding underlying gold and silver price trends.

Blasutti explained the transition away from oil supports gold’s bullishness. Once that happens, the rationale for holding U.S. dollars weakens greatly, while currency diversification, including precious metal purchases, will continue to make sense.

Whereas industrial metals have shown more price volatility during certain periods, gold prices have stayed relatively more stable, according to Blasutti, therefore making it more attractive for mining companies.

Source: MetalMiner data from MetalMiner IndX(™)

Gold prices have enjoyed some price support during the past year or so, but still remain lower than in the recent past. Still, prices are trading in a fairly stable sideways band and have done so, more or less, since 2013.

Historical Roots in Silver

Prior to moving into gold mining, as most other major silver companies have done to date, Americas Silver Corporation mined a mixed market basket including silver, zinc and lead.

With prices for silver quite low in the recent past, it’s difficult to justify mining the metal from a cost perspective. As a result of falling silver prices following the acquisition of two key silver projects, Americas Silver Corp. transitioned from predominantly silver mining toward lead and zinc.

Over time, the mining strategy shifted toward higher grades of lead and zinc and lower silver quality. It made more sense to take advantage of higher zinc and lead prices, while silver prices suffered a lengthy slump.

Into the foreseeable future, while silver prices remain lower, the company continues to focus on mining its lower grade silver, leaving the higher grades in the ground because the company remains bullish on long-term silver prices.

“When silver does come back, we can increase ounces quite dramatically on the silver side,” Blasutti said.

The company’s acquisition and startup of the Relief Canyon Mine, located in Pershing County, Nevada, for gold mining will transition the company from a base metals mining company back into a precious metals mining company.

“Part of the impetus to get back to precious metals was to get a commodity that we thought had less volatility,” Blasutti said. “Gold has shown to have less volatility in the last period, much more than the base metals. Base metals traded in a range and gold has traded in a range, but the range hasn’t been severe [for gold].”

Source: MetalMiner data from MetalMiner IndX(™)

So far, even with the trade war at hand, silver prices remain low.

Source: MetalMiner data from MetalMiner IndX(™)

As shown in the chart above, the gold-to-silver price ratio continues to increase toward gold.

But as pointed out by Blasutti, those remaining silver companies stand to win big once prices for the metal turn around. He pointed out the last time prices stood at around this ratio (90.3:1), silver came back.

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What This Means for Industrial Metal Buyers

Given projections for the reduction of oil use in the long-term as stricter emissions standards come into effect, demand for the dollar could decline into the future.

As demand for the dollar weakens, we can expect gold prices to rise. Once gold reaches higher prices, silver may finally follow suit, with the gold-to-silver ratio finally dropping back from current highs that strongly favor gold mine production.

byrdyak/Adobe Stock

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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Are gold prices really going to keep rising? Source: Adobe Stock/Nikonomad.

Gold powering to $1,400 an ounce sounds rather optimistic, but is actually not too far from the truth.

Spot gold has already gained about $80 so far this month, pushing the price this week to its highest level in more than five years.

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We have reported earlier about the rising appetite for gold in the form of ETFs and physical metal, but investors’ enthusiasm was spurred this week by dovish comments made by the Federal Reserve on Wednesday regarding interest rates.

Where previously the Fed has indicated patience and a watch-and-see policy, this week it signaled a possible interest rate cut as soon as next month.

The Fed is apparently worried about a deteriorating domestic and global economic backdrop, according to Reuters. A combination of damaging trade wars and slowing growth in all the major trading blocs, set against a backdrop of a potential end of a bull market cycle, is getting not just central banks but investors worried, too.

CNBC cited more technical issues around the movement of longer-dated treasuries as a major stimulus to gold buying (at least this week). The article states the 10-year Treasury yield slipped below 2% for the first time since November 2016, breaching an important psychological level, adding that the surge in gold prices was likely driven by the declines in yields of shorter-duration Treasuries ranging between three months and two years. The yield on the three-month Treasury note trickled lower to 2.146%, while the two-year note dropped to 1.716%.

Whether the Fed will cut rates next month will be driven by a number of factors, not least of which will be the impact of a strong dollar on U.S. exporters. The European Central Bank and the Reserve Bank of Australian have both signaled they intend to cut rates.

The Fed’s news this week has taken the edge off the dollar. Relatively speaking, however, other trading blocs appear ahead of the Fed in easing monetary policy. There is talk of quantitative easing returning in Europe, a move that could spark trade tensions between the U.S. and the E.U. as the Euro weakens further (which will be the subject of an upcoming followup piece on MetalMiner).

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Meanwhile, gold is in fashion and, in the absence of any contrarian news, appears set for further gains.

Piotr Pawinski/Adobe Stock

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.