Gold

The Global Precious Monthly Metals Index (MMI) gained 10 points for a February 2020 reading of 125.

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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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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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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.

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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.

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

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.

You could be excused for thinking gold has been eclipsed this year — bought in record amounts by central banks in the first half of this year — as the price rose strongly through the late summer but has since drifted off.

A recent report suggests, at least for some investors, gold has been sidelined in favor of a metal with stronger industrial applications, in addition to demand for jewelry and as an investment product.

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In the World Platinum Investment Council’s (WPIC) latest Platinum Quarterly report, the WPIC states that from a surplus of 345,000 ounces for 2019, investment demand in particular has been so strong that platinum is estimated to come out with a deficit of 30,000 ounces for the full year.

A 12% increase in total demand has been driven by a substantial surge in ETF buying, such that overall consumption is still up despite a 5% fall in automotive demand, a 6% fall in jewelry and a 1% fall in industrial demand.

ETF buying was particularly strong in the first half of 2019, the WIPC reports, but has carried on into the second half with the increase in holdings of nearly 1 million ounces. Much of the buying has been by large institutional investors looking to diversify from negative yielding debt equity increasing their holdings of gold and platinum. Such buyers typically work on a two- to three-year timeframe and, as such, are judging platinum has medium-term strength (despite weaker automotive demand).

Automakers have seen a collapse in diesel car sales, particularly in Europe (diesel cars’ top market). As a result, platinum has and will continue to suffer.

Palladium, on the other hand, is more efficient for petrol engine catalytic converters and has, as a result, done relatively well out of the swing in engine type demand. But at some price point, generally taken when palladium is double that of platinum, the latter can be used in place of palladium – its relative lack of efficiency meaning you have to use more platinum to achieve the same level of gas detoxification as you do with palladium.

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Platinum demand has been strong but prices have not fared as well as the other PGMs, such as palladium and rhodium, which have relatively done much better.

Even the upbeat WPIC recognizes the platinum market will be in surplus next year and above-ground inventory is expected to rise as a result of lower investment demand.

In the near term, that may mean there is a cap to prices at least in 2020, but clearly investors are betting on an upturn in the first few years of the next decade.

The Global Precious Monthly Metals Index (MMI) jumped six points this month, rising for a November MMI reading of 113.

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

Palladium-Platinum Spread Widens

As noted here many times before, platinum had historically traded at a premium to palladium.

That relationship, however, flipped as of September 2017, and has remained flipped ever since.

The palladium-platinum spread widened this month, even as platinum made gains.

The spread rose to $850/mt this month, up from $763/mt last month.

Looking Ahead

Gold and silver enjoyed a strong run-up during the summer season, but what is ahead for the precious metals?

“Having risen into the summer, gold and silver prices have plateaued in Q3 even as some ETFs have seen strong inflows due to accommodative monetary policies, such as falling Fed rates and safe haven buying in the face of geopolitical uncertainty,” MetalMiner’s Stuart Burns explained. “But jewelry demand is down, central bank buying of gold is lower than the same time last year and a strong dollar set up a number of headwinds that have seen prices unwind as news comes out about a possible winding back of tariffs between the US and China.”

As for platinum, prices did not tick up as much as one might have expected given trends in the automotive industry.

“Likewise, platinum prices have failed to make any headway in Q3 despite a strong showing from other PGMs, such as palladium and rhodium, both of which continue to benefit from the switch to petrol internal combustion engines among European carmakers,” Burns added.

“Gold, silver and palladium prices are expected to ease further in the run up to the year-end while other PGMs will be swayed more by car production and dollar strength. Much will depend on a successful outcome to the encouraging progress on trade talks, which could see investors take a more bullish attitude on risk to industrial metals and weaken demand for safe-haven investment metals.”

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Actual Metal Prices and Trends

The U.S. silver ingot/bar price rose 5.0% month over month to $18.08/ounce as of Nov. 1.

U.S. platinum bars rose 6.3% to $930/ounce. U.S. palladium bars jumped 8.7% to $1,780/ounce.

Chinese gold bullion rose 1.7% to $48.79/gram. U.S. gold bullion increased 2.3% to $1,512.70/ounce.

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India is right in the middle of its annual festival season that carries on until the year’s end — as is customary, all eyes are on the purchase patterns for gold and silver during the festival of Diwali.

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

When the country emerged from Diwali time, initial data showed that purchase numbers were down compared to the previous year.

Or, if you are an eternal optimist, the numbers this year were “not as bad” as predicted.

Experts like Surendra Mehta of the India Bullion and Jewellers Association (IBJA) had but a few days ago painted a picture of doom and gloom, forecasting gold buying would fall by 50% compared to Diwali 2018.

But guess what? The IBJA found out that its prediction had not come true.

Ajay Kedia, director of Kedia Advisory, said gold buying fell 25% this year, LiveMint reported.

Consumers had purchased about 30 tons of gold on a single day of Diwali called “Dhanteras,” down by an average 10 tons as compared to the last few years.

According to sales figures provided by other agencies in the business, pre-Diwali Dhanteras sales of gold and silver had dropped by about 40%.

According to the Confederation of All India Traders (CAIT), about 6,000 kg of gold was estimated to have been sold till evening on Dhanteras day, compared with 17,000 kg of gold sold on the same day in 2018.

CAIT’s Gold and Jewelry Committee Chairman Pankaj Arora was quoted by India Today as saying there was a decline of business from 35-40%.

Anantha Padmanaban, chairman of the All India Gem and Jewellery Domestic Council (GJC), told the same reporter they expected sales, in volume terms, to fall 20% compared with last year; however, sales in terms of value would be the same as last year because of higher prices.

Different figures, but all confirm one basic thing: gold and silver purchases were definitely down as compared to previous years, as feared.

The reasons for Indians losing some interest in bullion this year are:

  • Rising international prices
  • Increasing value of the U.S. dollar against the Indian rupee
  • Liquidity crunch in the Indian market
  • Rising unemployment
  • Increase in import duty on gold and other expensive metals

The benchmark gold futures in Mumbai touched a record U.S. $562 per 10 grams (Rs 39,885) in early September and were more than 20% higher than last year. Experts believe these prices could test approximately U.S. $580 over the next year.

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India is the second-biggest market for gold, after China.

Many in the Indian media have started writing off gold as an investment option for Indians, but as someone who has tracked this metal over the years, allow me to say this – they will eventually be proven wrong.

The Indian love affair with gold is not over and won’t be for a long time coming.

Source: World Gold Council

This morning in metals news, the World Gold Council unveiled a set of principles geared toward promotion of responsible mining, Apple’s newest iPhone includes stainless steel and an Indian steel tycoon is critical of the pace of the country’s insolvency proceedings.

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World Gold Council Launches Set of Principles for Responsible Gold Mining

The World Gold Council this week announced the launch of responsible gold mining principles that it says will offer a “new framework that set out clear expectations for consumers, investors and the downstream gold supply chain as to what constitutes responsible gold mining.”

The principles are divided into three categories: governance, social and environment.

“It is our aim that these Principles will become a credible and widely recognised framework through which gold mining companies can provide confidence that their gold has been produced responsibly,” the World Gold Council said. “The Responsible Gold Mining Principles are intended to recognise and consolidate existing standards and instruments under a single framework.”

Newest iPhone Includes Stainless Steel

Apple announced this week that its newest iPhone model, the iPhone 11, will be available in stores Sept. 20.

From a metals perspective, the new phone, which features a a triple-camera system, is made of glass and stainless steel.

“iPhone 11 Pro and iPhone 11 Pro Max have a textured matte glass back and polished stainless steel band, and come in four stunning finishes including a beautiful new midnight green,” Apple said in a release.

Indian Steel Tycoon Critical of Insolvency Proceedings

Indian steel tycoon Sajjan Jindal, head of the JSW Group, panned India’s relatively new bankruptcy and insolvency program on the grounds that it has been slow-moving.

Jindal’s JSW Group put in a $2.7 billion bid for the bankrupt Bhushan Power and Steel in February 2018, but only received approval by an Indian court last week, the Financial Times reported.

Since then, the steel tycoon’s interest in the acquisition has “definitely receded,” he told the Financial Times.

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The country’s Insolvency and Bankruptcy Code, initiated in 2016, aimed to streamline the process by resolving an insolvent business within 270 days; however, as the Financial Times noted, insolvency cases in the country have extended past the mandated 270-day deadline.

The Global Precious Monthly Metals Index (MMI) gained four points this month, rising for a September MMI reading of 106.

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Gold Market Subdued in India

MetalMiner’s Sohrab Darabshaw delved into the Indian gold market ahead of the festival season in the country, which includes Diwali in October.

As Darabshaw explained in late August, the apparent slowdown in demand ahead of the usually busy gold-buying season comes amid surging gold prices. Citing a Yahoo Finance report, Darabshaw noted India’s gold imports in July fell a whopping 55% on a year-over-year basis.

“Almost everyone is waiting for a price correction, which is a far cry from the positive situation at the start of 2019,” Darabshaw wrote.

“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).”

Gold-buying in India was also sluggish ahead of the holiday season last year.

A Gold Mine in Pakistan

Meanwhile, in Pakistan, MetalMiner’s Stuart Burns weighed in on the struggle between the Pakistani government and Tethyan Copper Co.

“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,” Burns wrote.

“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.”

The impasse benefits neither party, Burns opined.

“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,” he wrote.

“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.”

Platinum-Palladium Spread

While palladium remains at a significant premium to platinum, the spread between the two narrowed this past month.

After a spread of $638 per ounce as of last month’s MMI, palladium fell and platinum increased to produce a spread of $539 per ounce.

According to Kitco News, platinum is possibly riding momentum generated by other precious metals — namely gold and silver — of late. The platinum price recently approached its highest level in 16 months, Kitco News reported.

Actual Metal Prices and Trends

U.S. silver ingot/bars rose 12.3% month over month to $18.23/ounce as of Sept. 1. U.S. platinum rose 6.1% to $915 per ounce, while U.S. palladium fell 3.1% to $1,454 per ounce.

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Chinese gold bullion rose 7.8% to $49.33 per gram, while U.S. gold bullion rose 8.0% to $1,527.10 per ounce.

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