Articles in Category: Precious Metals

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The January 2020 Monthly Metals Index (MMI) report is in the books, including coverage of rising steel prices, U.S. automotive sales, construction spending and much more.

This month, all 10 of the MMIs increased.

The GOES, Rare Earths and Global Precious MMIs were the biggest risers, surging by 19.1%, 5.3% and 4.5%, respectively.

Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

Some highlights from this month’s MMIs:

  • U.S. steel prices made gains across the board during the first half of December.
  • Copper prices made gains but were capped somewhat by concerns over demand.
  • U.S. automotive sales were forecast to fall 1.7% in 2019 compared with the previous year.
  • U.S. construction spending in November picked up 4.1% on a year-over-year basis.

Read about all of the above and much more by downloading the January 2020 MMI Report below:

We have covered the precious metals and palladium, in particular, a few times over recent months, not because we have suddenly become PGM investors (although looking at price performance, that would have been a fortunate move) but simply because they are the only metals sector showing any real dynamism.

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The base metals have at best been lackluster. Aluminum has been range-bound for much of the last nine months, as has most of the base metals complex.

Copper has perked up since about November on the back of expectations of a thaw in U.S.-China trade relations. Nickel got interesting toward the back end of August when the market reacted to news of an Indonesian export ban but has since sunk back.

Only the precious metals have risen and sustained their rises during the period — albeit for differing reasons.

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The Global Precious Monthly Metals Index, a basket of precious metals, gained five points for a January MMI reading of 110.

Platinum, palladium prices rise after South Africa outages

Palladium and platinum prices received a boost last month after outages at South African mines, MetalMiner’s Stuart Burns explained.

“Power cuts earlier this year pushed the country close to recession,” Burns wrote. “The most recent outages have intensified over the last 36 hours, as heavy rains have flooded some power stations.

“Multiple failures affecting about a quarter of the country’s power plants have forced the utility to introduce severe rolling ‘stage 4’ cuts of 4,000 megawatts of power on Tuesday of last week, but it was still scrambling to fix breakdowns affecting another 15,000 megawatts — roughly a third of its generating capacity — by the end of the week.

“The rolling blackouts were escalated to stage 4 on Friday last week, with a rise to stage 6 (a complete loss of power) bringing many mining companies to a complete halt.”

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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 coverage here on MetalMiner, including: a natural gas transit deal between Russia and Ukraine; aluminum prices; the impact of escalating U.S.-Iran tensions on oil prices; and the copper demand picture.

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Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

Gold and silver prices in India have hit new highs recent days, to the glee of traders and the consternation of retail buyers.

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Multiple reasons are being attributed to the price rises, first and foremost being rising geopolitical tensions following the U.S. airstrike that killed top Iranian general Qassem Soleimani. Other factors include the fall of the Indian rupee versus the U.S. dollar in currency markets following the rise in the price of petroleum products.

As trends show, gold is normally considered to be a safe-haven asset in times of political or economic strife, as investors and even everyday buyers back off from buying equity or trading in currencies.

Last Monday, gold prices moved past the approximately $569.31 (Rs 41,000) per 10 grams mark, which was in line with sentiments in the international markets.

On India’s Multi Commodity Exchange (MCX), February gold futures, too, surged by 2.4% to a record high of about $570 (Rs 41,073) per 10 grams the same day, clearly underlining the market was betting on the price rise to continue in the coming days.

Last Friday, gold had already breached the $555 (Rs 40,000) mark per 10 grams. In the two days since the rally, the price rose by $25 (Rs 1,800) per 10 grams.

Silver futures on the MCX also went up 2.25% on Monday to trade at about $675 (Rs 48,595) per kilogram.

On Tuesday, however, gold and silver prices fell sharply in Indian markets because of the rupee’s rebounding.

On the MCX, gold futures rates fell 0.51% to $327.12 (Rs 40,265) per 10 grams, Livemint reported.

Back on Wednesday morning, the shine was back in India’s bullion market, riding on the back of prices escalating in the international markets by over 2% to touch $1,610.90, its highest level since March 2013. Gold prices in India hit an all-time high of about $573 (Rs 41,278).

Silver prices, too, were up 1.25% to $18.62 in the global markets, according to CNBCTV18.

Part of the resurgence in prices was attributed to Iran’s firing of rockets at U.S. bases in Iraq, read as a sign of an escalation in Middle East tensions.

Most analysts in India think if geopolitical tensions continue to boil, gold and silver’s upward momentum will also continue.

In addition to the tensions between the U.S. and Iran, other factors that are pushing bullion prices up, including uncertainties related to Brexit and the Hong Kong protests.

Some analysts are even forecasting Indian gold prices to touch $616 (Rs 44,300).

Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

Also on gold traders’ radar is U.S. Vice President Mike Pence’s speech next week, in which he is expected to lay out the government’s policy on Iran.

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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:

Looking for metal price forecasting and data analysis in one easy-to-use platform? Inquire about MetalMiner Insights today!

Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

Platinum has had a decent year from a price perspective.

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Not as strong as palladium, by any means. But despite the travails of the global automotive market, tighter emissions standards have helped demand.

But now price support has come from an unlikely — and unwelcome — source.

South Africa’s monopoly power utility Eskom has been suffering a wave of disruptions due to production failures that have led to blackouts to the country’s mining and refining industry.

According to the Financial Times, after being starved of investment by ex-President Jacob Zuma’s corrupt administration, Eskom’s aging coal-fired power plants are in a dire state. Maintenance of aging coal plants is only part of the problem, as their new replacement power plants have been riddled with flaws, the article reports.

Power cuts earlier this year pushed the country close to recession. The most recent outages have intensified over the last 36 hours, as heavy rains have flooded some power stations.

Multiple failures affecting about a quarter of the country’s power plants have forced the utility to introduce severe rolling “stage 4” cuts of 4,000 megawatts of power on Tuesday of last week, but it was still scrambling to fix breakdowns affecting another 15,000 megawatts — roughly a third of its generating capacity — by the end of the week.

The rolling blackouts were escalated to stage 4 on Friday last week, with a rise to stage 6 (a complete loss of power) bringing many mining companies to a complete halt.

Among them are reported to be Sibanye-Stillwater, Vedanta, Impala Platinum, and Petra Diamonds. Sibanye is the world’s largest platinum producer; the news of Sibanye and Impala’s blackouts caused a 3% spike in the platinum price (see chart from moneymetals.com below):

Source: moneymetals.com

The ongoing disruption is causing some miners, like Vedanta, to question further investment in their South African zinc mines. Meanwhile, others are considering building their own supplementary power production capacity, but on a wider scale.

Eskom has been described as the biggest challenge facing South Africa, a country with many seemingly insurmountable challenges. If the country cannot provide reliable power, it cannot operate an effective economy.

Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

These recent power-related problems are unlikely to be the end of the issue.

But it is hoped, as miners and refiners shut down for the Christmas–New Year break, Eskom can get some critical maintenance work completed prior to major consumers coming back online in mid-January.

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The Global Precious Monthly Metals Index (MMI) dropped three points this month for a December MMI reading of 110.

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Palladium-platinum spread widens

Once again, the spread between U.S. palladium and platinum prices continued to widen this past month.

Rising to $1,816 per ounce, palladium traded at a premium to platinum of $923/ounce, up from the previous month’s spread of $850/ounce.

“Platinum and palladium have shown continued strength in a tight auto-catalyst market with palladium in particular hitting record highs with little sign of a sell-off,” MetalMiner’s Stuart Burns explains. “Fundamentals are trumping sentiment with palladium and platinum — even a downturn in automotive output in Europe and China has not deterred investors focused on the tight supply market and the switch to petrol from diesel ICEs (internal combustion engines).”

Palladium prices have continued to soar, approaching the $1,900/ounce threshold early this week before eventually breaching it.

According to Reuters, a power outage in South Africa — one of the world’s top producers of palladium — impacted output at palladium mines, thus supporting the palladium price.

Gold prices steady

“Gold has been driven by hopes of a Fed cut and fears over an extension or deterioration in the U.S.-China trade conflict,” said Burns, adding that gold continued to hold steady ahead of the U.S.’s Dec. 15 tariff deadline.

After reaching around $1,550/ounce in September, the gold price dipped since then; thus far in December, however, the price has held steady at around $1,460/ounce.

However, this week the Wall Street Journal reported the U.S. and China would delay the previously announced Dec. 15 deadline, as trade talks with China continue.

In August, the United States Trade Representative said the U.S. would delay imposing tariffs on some products that were part of a $300 billion tariff list on imports from China. The tariffs were initially set to go into effect Sept. 1 before the deadline was pushed back to Dec. 15.

However, White House economic advisor Larry Kudlow, on the heels of the Wall Street Journal’s report, said the Dec. 15 tariffs are “still on the table,” CNBC reported.

The gold-dollar correlation

MetalMiner’s Belinda Fuller recently delved into the historical negative correlation between gold and the strength of the U.S. dollar.

The two typically move in an inverse relationship  — that is, when one gains, the other typically falls, and vice versa.

Recently, however, gold and the dollar bucked that trend, Fuller explained.

“Both gold and the dollar trended up in value overall, especially from July until September,” she wrote. “However, gold prices gained greater momentum and increased by a greater measure than the dollar. Then, both values fell in September and October.”

However, Fuller added the inverse relationship seemed to return to the scene in November.

What does this all mean in the short and long terms, particularly when monetary policy is thrown in the mix?

“With the overall macroeconomic environment characterized as unstable, gold prices may generally continue to trend higher in the short term, as gold gets used as a hedge,” Fuller wrote.

“However, over a longer period, current monetary policies could weaken prices once more — assuming they take effect as intended.”

Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

Actual metal prices and trends

The U.S. silver ingot/bar price fell 6.3% month over month to $16.94/ounce as of Dec. 1.

U.S. platinum bars fell 4.0% to $893/ounce, while palladium bars rose 2.0% to $1,816/ounce.

Chinese gold bullion fell 3.5% to $47.10/gram, while U.S. gold bullion fell 3.9% to $1,454.20/ounce.

An important source of precious metals — and in particular, Platinum Group Metals (PGMs) — is in a spiral of diminishing returns and could run out of cash in 2020 with consequences for metal supply and market prices.

Zimbabwe has been here before, it must be said.

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Ever since its corrupt and ineffectual leader Robert Mugabe was thrown out a shade over two years ago, the hope has been his replacement Emmerson Mnangagwa would enact reforms that would reverse the decline and root out corruption. While Mr. Mnangagwa has made some positive changes, unfortunately, his administration hasn’t shown the greatest competency.

Meanwhile, unable to pay for much-needed imports, the economy continues to spiral down. Importing more than it exports, Zimbabwe is facing dwindling foreign exchange reserves that threaten to choke off what remains of industrial activity.

More pressing even than the lack of fuel and spares is the impact it is having on the population, raising the prospect of further unrest — even outright insurrection — as Stratfor suggests in a recent Worldview report.

Fuel and food shortages spurred angry protests that ended in a violent security crackdown in January 2019 and while the government prioritizes what funds it has to pay off, the military’s rank and file, whose support is crucial to the administration staying in power, is suffering along with the rest of the population.

Government workers have begun demanding either pay raises or payment in U.S. dollars, according to the Stratfor report. The country’s junior doctors have been on strike since early September and were recently joined by senior doctors as well. Teachers, meanwhile, have also limited work to just two days a week and the risk of significant widespread unrest grows.

Zimbabwe’s mining sector has been in gradual decline for years, the government has been desperate to encourage more value-add refining at home but every step it takes – like enacting export bans similar to Indonesia – has backfired, creating greater trade imbalances as desperately needed exports have been blocked.

The country’s largest export is actually tobacco, making up nearly half the $1.93 billion of exports in 2017, the last year data was available, but metals make up a sizable portion of what is left.

Precious metals make up $145 million, ferroalloys make up $172 million and chromium ore makes up $122 million. Some ore goes for refinement to South Africa, but Zimbabwe’s largest export market by far is China, accounting for 44% of exports, according to the OEC.

If PGM exports were disrupted due to extended public unrest, the platinum supply market would still function. Zimbabwe’s production at some 11 tons per year is a tenth of South Africa’s 110 tons and only half Russia’s 25 tons, but it remains more than the U.S. and Canada combined, so any serious disruption would create support for higher prices next year.

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The same goes for palladium, which has broadly tracked above platinum this year and rhodium, which has already performed strongly on the back of emissions regulation changes, as this graph courtesy of Johnson Matthey illustrates.

Source: Johnson Matthey

Zimbabwe has increasingly faced a precarious future. Once the stable and prosperous breadbasket of Africa, it has progressively slid into decline under corruption and misrule.

Despite the hopes of 2017 after Mugabe was dethroned, it looks as the next year could be its most testing challenge yet.

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Gold prices surged this year due to greater uncertainty in the global macroeconomic environment.

By August, the price briefly regained the $1,500/ounce price point and stood at $1,460/ounce in late November.

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Over the longer term, gold prices and the dollar tend to move in an inverse relationship, as demonstrated by this chart, which shows prices from July 2012 through early November 2019:

Source: MetalMiner data from MetalMiner IndX(™)

However, the relationship does not always hold true.

More recently, we’ve once again seen a break in the relationship, which started late last year (the vertical blue dotted line above) and picked up steam around June.

Source: MetalMiner data from MetalMiner IndX(™)

Both gold and the dollar trended up in value overall, especially from July until September. However, gold prices gained greater momentum and increased by a greater measure than the dollar. Then, both values fell in September and October.

The relationship appeared to switch back to an inverse pattern in November.

Gold prices and the dollar-yuan exchange rate

Source: MetalMiner data from MetalMiner IndX(™)

Because the value of the yuan is set by the central government, the graph above using the CNY/$ exchange rate serves as a proxy to examine the relationship between the currency and gold prices.

Keeping in mind that a higher value on the right axis means a weaker yuan, we should expect to see these two prices moving together.

As the yuan weakens against the dollar, gold prices weaken. As the yuan rises in value, gold prices rise in value.

In real life, the relationship gets impacted by multiple variables. The yuan and the dollar do not have to move in an inverse pattern; the yuan is not a commodity but a currency (the same is true for gold).

However, in recent months, the gold price appeared to more tightly follow the CNY/$ exchange rate in a predictive fashion, rather than holding to its longer-term inverse dollar relationship.

This type of pattern emerged during 2016, as well.

Will quantitative easing by the Fed send gold prices up in Q4?

Monetary policy is known to impact commodity prices.

Quantitative easing is a form of monetary policy; therefore, we can expect any such actions in this direction to impact gold prices.

Quantitative easing can be used when interest rates are already quite low. In effect, it increases liquidity in the system, thus spurring growth.

U.S. Federal Reserve balance sheet since 2008

Source: Board of Governors of the Federal Reserve System

Quantitative easing occurs when the government purchases certain financial assets, which in turn raises the value of the assets but lowers their yield.

Basically, easing targets asset classes that are performing poorly, thus correcting losses for financial institutions. This, in turn, allows financial institutions to lower borrowing rates, creating more liquidity in the system.

The ease of access to funds by businesses and individuals then stimulates economic growth.

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What this means for industrial buying organizations

With the overall macroeconomic environment characterized as unstable, gold prices may generally continue to trend higher in the short term, as gold gets used as a hedge.

However, over a longer period, current monetary policies could weaken prices once more — assuming they take effect as intended.