The Global Precious Monthly Metals Index (MMI) gained 1.7% for this month’s reading.
The Global Precious Monthly Metals Index (MMI) gained 1.7% for this month’s reading.
The Global Precious Monthly Metals Index (MMI) gained 1.7% this month.
This morning in metals news, Novelis Inc. reported fiscal year 2020 net income fell 3%, ArcelorMittal has opted to suspend dividend payments and Barrick Gold has benefited from the gold price’s rise this year.
Before we head into the weekend, let’s take a look back at the week that was and some of the coverage here on MetalMiner, including: Tesla’s reported interest in cobalt-free batteries; the oil price crash; falling aluminum prices; supply-chain challenges amid the COVID-19 outbreak; Trump’s travel suspension; and global cobalt mine production:
Those enamored with charts and those preferring fundamentals are, for once, aligned.
The gold price hit a 10-year high as markets took fright at the impact of the coronavirus (Covid-19) on supply chains and productivity.
The flight to safe havens took a temporary battering last Friday, as sharp falls on stock markets prompted day trader margin calls and investors liquidated precious metal holdings to meet the costs.
But the horrendous volatility on the stock market is matched only by the horrendous potential damage widespread infection of the virus could potentially cause.
India is almost on the cusp of this year’s festival and wedding season, but the domestic bullion market remains subdued, contrary to historical norms.
The reason? Gold prices in India have rallied 20% this year based on several internal and external factors, Livemint reported.
Over the past week, spot prices touched a high of U.S. $558.45 (Rs 40,000) per 10 grams. The futures market showed a similar trend, though prices later dropped. Gold futures had hit a record high of U.S. $543.44 per 10 grams (Rs 38,666).
The Livemint report said the spread between MCX and international prices narrowed on Tuesday from near $51/ounce to about $42/ounce, sparking some buying interest in the physical market. But even then, the higher domestic price and higher taxes continued to dampen demand.
Bullion experts forward many reasons for the highest-ever spurt in gold prices, including: a hike in import duty, the weaker rupee versus the U.S. dollar, the ongoing U.S.-China trade war, the U.K.’s impending Brexit and buying by global central banks.
India’s gold imports this July fell by 55% from a year ago, down to a three-year low, Yahoo Finance reported.
The gold scene in most of Asia is equally depressing.
News agency Reuters reported steep prices prompted Asian consumers to sell back physical gold for profit this week.
Some amount of buying, even at the current price range, did happen because of gold’s appeal as an instrument to hedge against risk.
In China, the biggest gold consumer in the world, premiums eased slightly to $6-$9 per ounce over the benchmark, down from $9-$10 last week.
The Reuters report quoted Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong, as saying interest was mostly from the investment side.
In India, dealer discounts of up to U.S. $33 an ounce over official domestic price saw some amount of buying activity. Most dealers, however, were not in the mood to place new orders, preferring to wait and let the situation unfold, according to the Economic Times.
Almost everyone is waiting for a price correction, which is a far cry from the positive situation at the start of 2019.
Demand grew 9% from January-June this year, sparking hopes that consumption towards the latter half of the year would go up.
But experts are of the opinion that if things do not improve soon, consumption could slump to a low of over 650 tons (comparable to the 2016 low).
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.
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.”
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.
This morning in metals news, the strike at Freeport McRoRan’s Grasberg copper mine was extended for a second month, oil prices rose in expectation of supply cuts, and silver prices reached a three-week high.
This past Saturday, the union representing thousands of workers at Freeport’s Grasberg copper mine in Papua, Indonesia announced that the ongoing strike will be extended beyond May 30, Reuters reported. As union industrial relations officer Tri Puspital told Reuters, “We will extend the strike for 30 more days.” Approximately 9,000 workers are participating in the strike.
The reason for the strike revolves around employment. Last month, Freeport laid off about 10% of its 32,000 workers to cut costs, which accrued to the tune of millions thanks to an ongoing dispute with the Indonesian government over rights to the Grasberg mine. “With this problematic combination of protests from workers and tensions with the Indonesian government,” wrote MetalMiner analyst Raul de Frutos earlier this month, “it’s no wonder that investors are concerned about further supply disruptions this year.” It looks like supply disruptions will continue.
One hopes that this will be the only time when news source after news source mentions Saudi Arabia and glowing orbs in the same headline. In more important news, Bloomberg reported yesterday that Saudi Arabia has received Iraq’s support to extend oil output cuts for nine months, after Saudi Minister of Energy Khalid Al-Falih flew to Baghdad to talk to Jabar al-Luaibi, his Iraqi counterpart. Read more
Our Global Precious Metals MMI inched up a point in April. However, this year the index seems to be struggling near 84 points. Let’s take a look at gold and palladium, two of the precious metals integrated in this index, to better understand the ongoing trend in precious metals.
Some analysts are saying that gold is up this year on its safe haven appeal due to rising geopolitical instability. But that’s simply not true. Otherwise, we would see it reflected in stock market indexes, which are trading at record highs. Not only the U.S. but also Europe, China and other emerging markets are seeing their stock markets hit multi-year highs. Investors are confident about the prospects for the global economy, and until something proves them wrong, gold is lacking any appeal as a safe haven.
If you held gold this year, don’t thank rising political tensions; simply thank a weaker dollar and some dip buying. This year’s rally in gold follows a 18% price slump in Q4 of last year. But prices are back to their average and just 8% below $1,380/oz, a level that has been a ceiling to gold prices for four consecutive years. This means that investors will have to find good reasons to chase prices higher. Given the ongoing strength across global stock markets and the rather neutral picture of the dollar, we wouldn’t expect gold investors to get a good return on their money for the balance of the year.
As I’ve written earlier on MetalMiner, “palladium prices rose to a two-year high in April, making it the biggest gainer among precious metals. Last month we outlined some of the factors contributing to the palladium price rise: a growing auto sector; a strong South African currency; a falling dollar; and bullish sentiment across industrial metals. However, as prices continue to climb, it’s time to question how high prices can go. Despite a still solid outlook, there are some reasons to believe palladium prices could be nearing their peak.”
One of them is a potential slowdown in demand for cars. U.S. car sales declined in April, following a disappointing month of March. Markets suspect that the car industry boom that has run since 2010 has now come to an end.
Meanwhile in China, car sales are still going strong, but the pace is not the same as last year. As I wrote before, “weaker sales tax incentives have put pressure on demand this year and are expected to slow down demand even more next year. Buyers of cars with engines up to 1.6 liters paid a 5% purchase tax last year, but they are now paying a 7.5% rate. Buyers are still finding incentives to rush on buying cars this year since the rate will increase to 10% in 2018.”
Finally, as with the case of gold, palladium might need the stronger fundamentals to lure investors to chase prices higher. Historically, palladium has peaked in the range of $850-$900. Prices closed in April at $827.
Precious metals gained this year, but gains won’t come easily from now onwards. The opportunity to buy or invest in precious metals might have passed by.