Gold

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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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Gold is back in the news in India, the second-largest consumer market in the world.

Gold prices have been moving upward, buoyed by several conditions, since January.

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On Feb. 6, for example, retail gold prices touched approximately U.S. $461 (Rs 33,000) per 10 grams in Mumbai and over U.S. $474 (Rs 34,000) in Ahmedabad, nearing new all-time record highs. This was in contrast to prices in London, which held flat in U.S. dollar terms.

Gold prices globally on the same day held firm after U.S. President Donald Trump’s State of the Union address, but a firmer dollar stopped the bullion’s gains. Spot gold was steady at $1,314.30 per ounce in intraday trading. U.S. gold futures were also steady at $1,318.20 per ounce.

Any rise in consumption by India is welcome, as it will push up global prices currently near an eight-month high.

Gold analysts anticipate a rise in India’s gold demand this year. The World Gold Council (WGC) recently said prices could go above the 10-year average.

The WGC estimated consumption this year in India would go up to 750-850 tons versus 760.4 tons of last year, according to Somasundaram PR, managing director of WGC’s Indian operations, as quoted in The Economic Times.

If one were to look at the consumption data of the last decade, demand by Indian consumers has averaged 838 tons.

What may push up gold consumption is more purchasing power in the hands of Indians this election year, as the present government unveils policies with an eye on the polls.

Much of this growth is anticipated from the country’s rural sector. Almost all of India’s gold is imported, and this incoming movement has been affected by the Indian government’s efforts to restrain its trade deficit by measures to discourage investors who used gold to evade taxes.

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In addition to this being an election year, the wedding season is another reason for the spurt in gold buying.

Gold has been the metal to hold these last few months. While the base metals index has been at best trading sideways — and in many instances, gradually weakening — gold has been making a comeback.

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Even before Fed announcements in January 2019, gold had been rising during the second half of 2018, reaching a peak in January of over USD $1,320 per ounce (its highest level since May 2018).

CNBC quotes an ABN AMRO analyst who says “Supporting gold is the double whammy of lower dollar and the (Fed decision on) U.S. interest rates.”

It’s true to say there is an inverse relationship between the greenback and the price of gold; as the dollar falls, it makes dollar-denominated commodities like gold cheaper for foreign investors and the price tends to firm. In addition, if interest rates weaken, the gold price can firm as lower interest rates reduce the opportunity cost of holding non-interest-earning gold.

The Fed’s decision not to raise rates — with “weakened” economic conditions as the justification for putting rates on hold — is a position the market now sees extended well into 2019 (not only reduced interest rate expectations, but the value of the dollar).

SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, was at the highest price since June, according to Reuters, climbing 4.6% so far this month. That gain marked the biggest monthly gain since September 2017.

But investor interest has not been the only driver of demand.

In an effort to diversify out of dollar holdings, central banks — particularly emerging-market central banks — have been selling U.S. Treasuries and buying physical gold.

According to the Financial Times, central bank buying of gold reached its highest levels for almost half a century last year as Russia, Turkey and Kazakhstan led combined central-bank purchases of a net $27 billion worth of gold after sales by Australia, Germany, Sri Lanka, Indonesia and Ukraine, which sold a combined 15.6 tons are deducted.

Russia was by far the largest buyer, adding 274.3 tons last year, bringing official gold reserves to 2,066 tons, worth some $87 billion. At this level, Russia holds some 18% of its total reserves in gold. But if that sounds like a lot, compare it to Germany at 69% and the U.S. at 74%.

All these central banks have been selling dollars to fund their purchases, a move that has seen the greenback as a share of central bank reserve currencies fall to a five-year low in Q3 last year. Some eastern European countries joined the buying spree, making this year’s net purchases the highest since the U.S. moved off the gold standard in 1971, Reuters noted.

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There is nothing to say this has run its course. Heightened trade uncertainty and slowing global growth will continue to create favorable conditions for gold demand, both from investors and central banks, in 2019.

In times of uncertainty, gold has not lost it role of safe haven.

After surging more than 50% in the last four months, palladium — that previously little-discussed Platinum Group Metal (PGM) — reached $1,255.12/ounce, surpassing gold for the first time in 16 years last week, according to The New York Times.

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Driven by both investor and trade interest, palladium appears to be responding to strong demand from the auto industry (from which 80% of its consumption comes).

A swing to petrol engines has boosted palladium demand, in preference to its sister metal, platinum, which is used more in diesel engines. The metal is also used in alloys for products like surgical instruments, dental alloys and certain electronic applications, The New York Times notes, but it is a combination of catalyst demand and constrained supply that has caused shortages, leading some dealers to run out of metal.

According to the report, citing consulting firm Metals Focus, demand for the metal for catalytic applications will reach a record high of 8.5 million ounces this year. Tighter emissions legislation and the switch to petrol cars is driving surging demand, such that consumption is expected to outstrip supply by 1.2 million ounces this year, with the market remaining in deficit next year.

Miners have found it difficult to keep up.

Mines in South Africa, in particular, have faced worker disruption and are said to be struggling to cover costs, as PGM prices generally remain depressed but mine inflation challenges profitability and deters investment.

The world’s largest producer is Norilsk Nickel in Russia. Buyers were heartened by the firm’s announcement last week that it plans to invest $12 billion in mine expansion over the next five years, according to The NewYork Times report. Supply may come onto the market just as the long anticipated but equally delayed arrival of electric vehicles finally begins to become a reality.

But for now, the metal seems a good bet for 2019, providing vehicle sales do not falter. Investors have driven Palladium ETFs up 12.3% this year, even as gold has fallen 6.4%.

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The big money has been made, but palladium’s fundamentals remain better than gold’s — providing global growth and vehicle sales hold up in 2019.

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MetalMiner’s Global Precious Monthly Metals Index (MMI), tracking a basket of platinum, palladium, gold and silver prices in several geographies across the globe, is now officially in a two-month uptrend this November after several months of declines.

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The Global Precious MMI came in at a value of 85 for its November 2018 reading, up 2.4% from 83 last month, continuing a steady upswing (the sub-index’s level this past September had not been seen since January 2017).

The U.S. platinum bar price sustained its own bounce-back with another spike this November. As my colleague Fouad Egbaria mentioned earlier this week, the platinum-palladium spread narrowed slightly this past month. U.S. platinum bars rose 2.6% to $835/ounce, while palladium bars fell 0.3% to $1,067/ounce.

Notably, platinum continues to stay above the $1,000 per ounce threshold, which is quite significant.

Palladium Looking Up

A couple weeks ago, palladium hit a record high — so high, in fact, that it nearly achieved parity with the gold price, something for which the platinum price has usually been in the running as the lead candidate … but not lately.

The U.S. gold price, as tracked by our MetalMiner IndX, gained slightly over last month to begin November at $1,214 per ounce.

As we’ve been continued to report in this monthly column, “a combination of factors, from tight supplies and large deficits to resurgent interest from speculative investors, has kept the platinum group metal (PGM) on the boil,” as a recent Reuters piece put it.

However, more specifically it looks as though geopolitics have been in play.

According to Reuters, fears that Russia “could restrict supplies in response to the United States’ plans to withdraw from the Intermediate-Range Nuclear Forces Treaty,” as well as the promise that a recent economic stimulus package in China will inject life into the auto markets, has contributed to spiking palladium prices.

Speaking of the auto markets, when it comes to the U.S. automakers, the platinum-palladium price differential has got analysts using the “S” word: substitution.

But even with the sustained reversal in the price relationship, car companies such as General Motors won’t be rushing to swap the two materials anytime soon.

“It’s not a flick of a switch for us,” Rahul Mital, global technical specialist, diesel aftertreatment at General Motors, said in a panel discussion at a London Bullion Market Association meeting in Boston on Monday, as quoted by Bloomberg.

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“Any time you want to make a substitution like that, it is at least 18 months to a two-year cycle if we’re going to switch. We have to be careful that by the time we do all that, price changes don’t negate the benefits,” Mital was quoted as saying.

Platinum’s Tail Already Between Its Legs

According to a different Reuters article citing a poll carried out by the news service, palladium’s price premium over platinum “will widen next year, with palladium set for its best year on record while platinum slumps to its worst performance since 2004.”

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Palladium is expected to average at $993/ounce this year, and $1,025/ounce next year, while platinum is expected to be averaging $882/ounce in 2018 and $875/ounce in 2019, according to the experts and analysts polled in the article.

We’ve touched on conflict materials in this space before, typically in reference to cobalt. A majority of the world’s cobalt is mined in the Democratic Republic of the Congo, where conditions at so-called artisanal mines (i.e., small-scale mines) are sub-standard, according to reports by a variety of NGOs.

Among the concerns at these mines includes a lack of regulation, which in some cases leads to extremely unsafe working conditions and the use of child labor.

Amnesty International last year released a report in which a number of big-name companies came in for criticism with respect to their cobalt supply chains.

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Yesterday, we cited a recent report by the Enough Project on cobalt and murky supply chain ethics.

Meanwhile, over at MetalMiner’s sister site, SpendMatters, you can find a similar report on the supply-chain issues related to gold — that is, conflict gold passing through some big-name companies en route to the U.S. market.

The SpendMatters piece cites an October study by The Sentry, which is an initiative of the Enough Project and Not On Our Watch Now (NOOW).

Documents reviewed and interviews carried out by The Sentry, a team of policy experts and financial auditors co-founded by George Clooney, raise concerns that the corporate network controlled by Belgian tycoon Alain Goetz, director at the Belgian gold refinery Tony Goetz N.V., has refined illegally smuggled conflict gold from eastern DRC at the African Gold Refinery (AGR) in Uganda and subsequently exported it through a series of companies to the U.S. and Europe. The study lists companies like Amazon, General Electric and Sony as possibly being ones that conflict gold may have been sold to.

The Sentry’s study can be found here.

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Read the full SpendMatters piece here.

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Festival season in India normally means one thing: a rush to buy gold.

Outside of China, India sees the most amount of gold buying when Indians are, well, happy or enjoying a moment — be it a party, a wedding or a festival.

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But this festive season, starting from around the beginning of October, gold buying has not picked up at the pace one it used to.

Reports are coming in that Indians are not flocking to jewelry stores as they normally would for a couple of reasons – an increase in the price of domestic gold and the increasing value of the U.S. dollar versus the Indian rupee.

At the first marker of this season, that is Dusshera, when buying the yellow metal is considered auspicious, demand was down between 20-40% in some places, as compared to the same period last year, according to a Reuters report.

Of course, demand was better compared to some of the previous months, but it has not been as high as it was last year, according to Nitin Khandelwal, chairman of the All Indian Gems & Jewellery Domestic Council, as quoted by Reuters.

Much of the demand for “festival” gold comes from rural India. This year, that sector is lagging, partly because of failure of the monsoon in many parts. A good monsoon means a bumper crop, which translates into better buying of the bullion during the festival time. Even discounts of about U.S. $8 an ounce failed to pull in the crowds.

The next milestone is the Indian festival of lights, Diwali.

While some retail jewelers are optimistic of an increase in pickup, others are keeping their fingers crossed. The price of gold continues to soar, touching Rs 32, 350 (about U.S. $442) per 10 grams as of Oct. 23.

Gold plays a major role in the Indian economy. Previous studies have pegged India’s gold stock at around 24,000 tons, mostly held by the average Indian. Its value, at today’s rates, reaches about U.S. $800 billion.

The last quarter of the year is the season of peak demand, with Indians buying almost 240 metric tons on average in the past four years, according to the World Gold Council.

This year, Dhanteras — one of the most auspicious days for Indians to buy gold — falls on Nov. 5 and will be followed by Diwali.

Both retailers and bullion analysts say that if things on the ground do no improve by then, the trend seen during Dusshera will follow into Diwali.

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Gold futures at India’s Multi Commodity Exchange of India Ltd. are up by over 10% this year, the highest since July 2016.

The rupee, on the other hand, is at its lowest standing versus the dollar in 16 years. Ask any bullion dealer or retailer and the market rule of thumb is that rising prices always bring down sales.

Going by the way things are on the ground at the moment, chances of things changing dramatically for the better by the first fortnight of November seems like a far-off dream.

Last month we noted that record-low prices characterized the Global Precious Monthly Metals Index (MMI) monthly reading and posed the question: will there be more price drops to come?

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From the looks of it, the short answer to that is … yes.

Here’s What Happened

Going by the August 2018 reading of MetalMiner’s Global Precious MMI, which tracks a basket of precious metals from across the globe, the subindex suffered a loss of 2.4%, falling to a value of 82.

The last time we saw the Global Precious MMI at that level was February 2017.

Platinum and palladium seemed to drive the loss this month, yet all major forms of precious metals across geographies ended up lower this month.

For example, the U.S. platinum bar price dropped 1.8% to $837 per ounce. Palladium is still transacting at a premium to platinum in the U.S. market, but not in the China or Japan markets (although exchange rates may ultimately be affecting that relationship). The U.S. palladium bar price dropped for August as well, down 2.1% to $928 per ounce.

Yet the U.S. silver price ended up lower than $16 per ounce to begin the month for the first time since January 2017, clocking in at $15.50 on Aug. 1. The gold price dropped as well, with U.S. gold bullion taking a 2.3% hit to end up at $1,223.40 per ounce.

All of these metals appear to be in a long-term downtrend since the tail end of 2017 and first couple months of 2018.

What Buyers Should Consider

  • A strong dollar still keeping the platinum price low. Along with supply surplus and the ever-looming threat of a global trade war, the dollar’s strength is a strong indicator of platinum’s fortunes for the rest of 2018. A recent Reuters poll of 29 analysts and traders showed that the platinum price looks to remain historically depressed for the balance of the year, with a slight rebound in 2019. “The diesel scandal remains a drag on demand … Meanwhile, currency weakness provides a lifeline to the South African platinum industry, cutting dollar-denominated costs and reducing the risk of mine closures,” said Carsten Menke, analyst for Julius Baer, as quoted by Reuters.
  • Palladium to remain at a premium? “We expect a rebound in palladium prices [in 2019] amid a growing market share of gasoline vehicles and healthy demand growth in emerging markets. Fundamentals are tight amid a widening deficit,” Intesa Sanpaolo analyst Daniela Corsini told Reuters.
  • Your latest preferred supplier — Sears? In the current economic climate that retailer finds itself in, it’s strange to hear that the company has added several brand lines sold by third-party sellers to “bolster its online marketplace,” according to a press release. Additions include “gold, silver, platinum and palladium bars, rounds and coins, as well as premium bullion products,” the release stated. So if you’re looking outside the box to source your precious metal volumes for industrial applications, take note: “Sears.com and Shop Your Way® are currently offering a $20 CASHBACK in Points when members spend $100 or more on APMEX [the online retailer of the metals] products until August 11.”

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Mining for gold is an expertise of which not too many Indian miners can boast. In fact, it makes up a minuscule portion of overall annual mining activities in the country.

With neighboring China on the prowl for gold mining projects internationally, some recent news has brought some cheer to the gold sector in India.

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For the first time, a state-owned miner will take up gold mining in India. Earlier this month, India’s National Mineral Development Corporation (NMDC) won the rights to it at an e-auction. In the process, it beat several biggies, such as Vedanta and Adani. NMDC will dig up a gold mine located in the southern Indian state of Andhra Pradesh.

NMDC is not a newcomer to gold mining. It is developing a gold mine in Tanzania, while its Australian subsidiary, Legacy Iron Ore, is currently in the process of testing as many as 17 gold tenements in the Western Australian region.

The Chigargunta-Bisanatham mine will be an underground operation. First-phase production is expected to begin two years after the permitting process.

According to a report by the Press Trust of India (PTI), the initial investment is estimated to be about U.S. $4.5 billion. The Indian government stands to earn 38.25% revenue on sale value. It has estimated reserves of 1.83 million tons containing 5.15 grams of gold per ton.

Incidentally, India is on the way to formulating a new gold policy, which will promote domestic gold mining.

Industry experts believe that at least 100 tons of gold can be mined annually in India, from the present level of about 1.5 tons (as compared to China’s 450 tons a year). Geologists believe that India sits on vast deposits of gold, as the terrain from Australia to China is very similar, so they see no reason why India cannot step up its gold mining.

Experts want the Indian government to factor in the complete journey of gold, from mines to market, under the new policy.

Very slowly, after a court-imposed e-auction for mining, gold mining has picked up.

One of the first in this business was Vedanta. In February 2016, Vedanta Resources became the first private company to successfully bid for a gold mine in India, in the central Indian state of Chhattisgarh. The mine has gold reserves of 2.7 tons.

Other Indian private miners, in collaboration with international players, have started to move in. More and more are expected to follow in the footsteps of Vedanta and NMDC.

Gold mining will also save the country foreign exchange, since it imports most of its gold at the moment.

A previous government report identified the unrefined gold resource base in the country at 658 tons of metallic gold. The report also stated that this tonnage is spread over 13 different states.

India needs to get its act together on the gold mining front, especially since China is already well on its way. Since 2013, when gold prices plunged 30% in a year, China has been ramping up overseas gold-mining investments.

There is no doubt that developing gold mines is a long-term, risky process requiring years of planning, research and infrastructure development. Miners also need to conduct analyses on how much gold a ton of ore actually contains.

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But for Indian companies interested in this, several bottlenecks, including environment permissions, remain.

If a miner has to apply for a gold mining license, it has to take over 100 permissions before getting a permit — a process that takes over seven years.

Hopefully, experts say, this will be history once the new policy is adopted.

No one can say the first half of 2018 was not an impactful time for metals markets, including safe-haven assets like gold.

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The World Gold Council’s first-half outlook report details the market forces at work behind the gold price’s recent drop, but also argues an array of factors could see the price rise in the second half of the year.

According to the report, after a 4% rise in Q1, gold came back down by the same amount in June, and argues the price is being driven by a triumvirate of factors: the strengthening U.S. dollar, higher investor threshold for headline risk and soft physical gold demand.

“At the same time, gold’s price momentum and investor positioning in derivatives markets has accelerated its descent,” the report states. “We believe, however, that there may be reasons to be more optimistic during the second half of the year.”

Regarding the first, like other metals, gold exhibits an inverse relationship with the U.S. dollar. The dollar has leveled off somewhat in recent weeks, but in the year to date has posted strong gains. In the year to date (i.e., through July 31), the U.S. Dollar Index has jumped 2.61%, as of Wednesday afternoon.

The dollar dropped in January but steadily increased since then, with the spot index hitting a high of 95.39 as of June 28.

However, the World Gold Council argues the trend of strength might not continue, despite the most recent quarter showing the largest appreciation in the value of the dollar since Q4 2016.

“In addition, in the face of ongoing rhetoric over trade agreements, the market seems to have taken the view that the US will likely benefit from renegotiations,” the report states. “Even if this turns out to be the case, many economists believe that an increase in tariffs will eventually have a negative impact on economic growth. And while this could decelerate gold consumer demand somewhat, its effect may be lessened by a weakening in the US dollar.”

In addition, the rise in trade protectionism around the world “has significantly increased the risk that inflation will accelerate further,” the report argues, also noting the price of gold historically rallies when inflation moves above 3%.

For now, however, inflation levels in the U.S. has leveled off in June, according to PCE Index data released Tuesday. Whether factors like trade conflicts will lead to a surge in inflation remains to be seen in the coming months.

In another optimistic outlook, the report notes that the summer months typically see lower gold demand, while September typically sees demand rise.

“Finally, while the summer period tends to be a quiet period for gold buying and trading – as seen by softer seasonal demand, lower trading volumes and sideways price movement – the gold price has tended to increase in September as consumers prepare for a traditional buying period and investors rebalance their portfolios before the end of the year,” the report states.

Gold has lost a bit of its sheen in recent months, but that could change throughout the remainder of the calendar year if the report’s assumptions hold true. Like many current events in the metals markets, we’ll just have to wait and see what happens vis-a-vis a number of political and economic buckets, from trade barriers to the strength of the dollar to rates of inflation.

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The full report is available on the World Gold Council website here.

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