Gold

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This morning in metals news, Bank Of America cut its steel price forecast, copper prices dropped and gold lost some of its safe haven luster.

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Gloomy Steel Forecast

Bank of America has cut its steel price forecast and is less than optimistic about steel stocks going forward, Yahoo Finance reported.

According to the report, Bank of America analyst Timna Tanners cut her U.S. HRC price target for the second half of the year from $628 per short ton to $572 per short ton.

Tanners also cut 2019 EPS cuts for U.S. Steel, Nucor, Reliance Steel and Aluminum, Steel Dynamics and Commercial Metals Company, according to Yahoo.

Copper Price Drops

Markets continue to fluctuate on a daily basis based on any sliver of news emerging from the ongoing U.S.-China trade war.

On Friday, despite China’s intention to increase bank lending, LME copper was bid down 0.6% to $5,812 per ton, according to Reuters, after reaching a two-year low earlier this week.

Not so Golden

The gold price posted its largest daily dollar loss in three years, MarketWatch reported, on optimism regarding trade and jobs data impacting its safe haven appeal.

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According to the report, gold on the COMEX for December delivery slipped 2.2% to a two-week low of $1,525.50 per ounce.

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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.

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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.

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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).

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.

This morning in metals news, the EPA reversed an Obama-era decision regarding an Alaskan mining project, the Federal Reserve issued its first rate cut since the financial crisis and a Chinese billionaire is alleged to have instituted a scheme to avoid $1.8 billion in tariffs on aluminum exported to the U.S.

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EPA Decision Undoes Obama-Era Ruling

The EPA issued a ruling that reversed an Obama-era ruling that had blocked an Alaskan mining project, CNN reported.

According to the report, the Pebble Mine project had previously been blocked because the EPA during the Obama administration determined the project would have adverse effects on the area’s fish habitat.

Fed Issues First Rate Cut Since 2008

As many had expected, the U.S. Federal Reserve on Wednesday announced its first interest rate cut since 2008.

The Fed and Chairman Jerome Powell have come in from criticism by President Donald Trump for previous rate increases, arguing they were hampering the economy’s momentum.

The rate decrease announced Wednesday come in at a quarter of a point, down to 2-2.25%.

“Job gains have been solid, on average, in recent months, and the unemployment rate has remained low,” the Fed said. “Although growth of household spending has picked up from earlier in the year, growth of business fixed investment has been soft. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.”

Chinese Billionaire Accused of Scheme to Avoid $1.8B in Aluminum Tariffs

In a 53-page indictment released by a federal grand jury this week, a Chinese billionaire is accused of misrepresenting aluminum exports to the U.S. as pallets in an effort to avoid $1.8 billion in aluminum tariffs.

“The 53-page indictment alleges that China Zhongwang Holdings Limited, Asia’s largest aluminum extrusion company; Zhongtian Liu, the company’s former president and chairman; and several individual and corporate co-defendants lied to U.S. Customs and Border Protection to avoid paying the United States $1.8 billion in anti-dumping and countervailing duties (AD/CVD) that were imposed in 2011 on certain types of extruded aluminum imported into the United States from China,” the U.S. Attorney’s Office of the Central District of California said in a release.

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According to the documents, the aluminum exports were simple extrusions, rather than pallets. The products, misrepresented as pallets in order to circumvent tariffs, were then sold “to related entities to fraudulently inflate the company’s revenues and deceive investors around the world,” the indictment alleges.

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.

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.

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?

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.

Zerophoto/Adobe Stock

This morning in metals news, China’s export levels fell last month, White House economic adviser Larry Kudlow is optimistic about a U.S.-China trade deal and an Australian gold miner is buying a Canadian copper and gold mine for $806.5 million.

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China’s Exports Take a Dip in February

According to CNBC, China’s exports fell more than 20% in February.

Previous media reports indicated the U.S. and China could be set to ink a deal later this month that could end the current state of trade tensions.

According to the report, China’s February trade balance of $4.12 billion came in well short of economists’ expectation of a balance of $26.38 billion.

Kudlow ‘Bullish’ on China Deal

Speaking of U.S.-China trade talks, White House economic adviser on Sunday said he is still “bullish” on the prospects of a deal with China, Politico reported.

“Across the board, the deal has to be good for the United States and for our workers, and our farmers, and our manufacturing,” Kudlow told “Fox News Sunday,” according to the report. “It’s got to be good. It’s got to be fair and reciprocal and it’s got to be enforceable.”

Newcrest to Buy Canadian Mine for $806.5M

Australian miner Newcrest Mining Ltd. is set to buy a Canadian copper and gold mine for $806.5 million, Reuters reported.

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Newcrest announced it is aiming to purchase a 70% joint-venture interest in the mine, located in British Columbia, from Imperial Metals Corp.

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