The WPIC is predicting a record deficit of 1.2 million ounces in 2020. The projected deficit would mark a sharp uptick up from a deficit of 100,000 ounces in 2019.
The report states supply in 2020 fell by 18% due to virus-induced lockdowns. Meanwhile, demand fell only 5% as automakers managed to maintain output, resulting in a deficit of -1,202 Koz.
Next year, the council is expecting demand growth of 2%. That growth, it expects, will come on the back of stronger consumer and industrial demand as consumers return to less cautious ways and increase spending on jewelry and cars.
Automotive will see support not just from increased car sales but also greater per-vehicle PGM use as implementation of new, tighter Euro 6 emission standards in Europe come into effect.
This is expected to result in supply increasing by 17% and demand rising by 2%, resulting in a lower deficit of -224 Koz.
As Kitco News reported, the gold price did not react in any significant way to the recent stretch of historic unemployment claims in the U.S. — nonfarm payroll employment fell by 20.5 million in April alone, the Bureau of Labor Statistics reported — because the news was largely expected.
It remains to be seen how various states’ plans to “reopen” their economies will progress given the still-elevated number of cases and deaths in some regions of the country.
This week, however, Bloomberg reported the VIX, or volatility index, fell to a nine-week low. The VIX dropped below 30 for the first time since March 3, Bloomberg reported.
Meanwhile, CBOE’s Gold ETF Volatility Index (GVZ) was down Friday, falling to 25.62 as of Friday afternoon after opening today at 26.76. The GVZ reached as high as 54.37 this year (March 18).
Elsewhere in the precious metals basket, MetalMiner’s Stuart Burns delved into the recent surge in the gap between gold and silver prices.
In short? Investor interest in silver ETFs has gotten a boost.
“The Financial Times reports on the dramatic rise in silver ETF holdings as investors bet on a rally in silver after the gap between gold and the industrial metal soared to its widest level in more than three centuries,” Burns wrote.
“The article states that in March the price of an ounce of gold was 125 times higher than the same amount of silver — a record going back to at least 1687.
“Since then, the gap has closed to about 113 times, as silver rose to $15 per ounce; Bank of America is reported as predicting silver could top $20 over the next year.”
Top gold miners post strong Q1
Miner Newmont Corporation reported first-quarter gold production of 1.48 million ounces, up 20% from Q1 2019, “primarily due to new production from the Goldcorp assets, partially offset by the sale of Kalgoorlie in Australia and lower ore grade milled at Ahafo, Yanacocha and Merian.”
Newmont benefited from rising gold prices (gold is up approximately 12% since the start of this year).
“Average realized price for gold was $1,591, an increase of $291 per ounce over the prior year quarter; average realized price for copper was $1.56, a decrease of $1.33 per pound over the prior year quarter; average realized price for silver, lead and zinc were $14.13 per ounce, $0.64 per pound and $0.62 per pound, respectively,” Newmont said in its Q1 earnings report.
Meanwhile, Barrick Gold Corporation posted Q1 net earnings of $400 million, up from $111 million in Q1 2019.
In operational news, Barrick is currently in a dispute with the government of Papua New Guinea over its decision not to extend the lease for the Porgera gold mine. The open pit, underground gold mine is a joint venture operated by Barrick (47.5% stake), Zijin Mining Group (47.5%) and Mineral Resources Enga (5%).
“Since the end of the quarter, the government of Papua New Guinea has announced that it will not renew Barrick Niugini Limited’s 20-year Special Mining Lease for the Porgera gold mine,” Barrick said in its earnings report. “Barrick has said it will contest the move, which it regards as tantamount to nationalization without due process. In the meantime, BNL has placed Porgera on temporary care and maintenance. In addition, due to the uncertainty related to the timing and scope of future developments on the mine’s operating outlook, we are withdrawing our full year 2020 guidance for Porgera at this time.”
Last month, South African President Cyril Ramaphosa announced the extension through the end of April of lockdown measures aimed at curbing the coronavirus outbreak.
Earlier this month, however, the government began to ease restrictions, allowing for some stores to reopen (mines had already been permitted to operate at 50% as of late last month).
“Yet, while a nation-wide lockdown is probably the most effective means to contain the spread of the coronavirus, it cannot be sustained indefinitely,” Ramaphosa said April 25.
“Our people need to eat. They need to earn a living. Companies need to be able to produce and to trade, they need to generate revenue and keep their employees in employment.
“We have accordingly decided that beyond Thursday 30 April, we should begin a gradual and phased recovery of economic activity.”
Anglo American Platinumreported a 7% decline in PGM production in Q1, down to 954,800 ounces, citing South Africa’s COVID-19 mitigation measures.
Meanwhile, Impala Platinumreported a 6% drop in production for the first quarter of calendar year 2020.
“The implementation of the lockdown is estimated to have resulted in a 6% reduction in reported milled tonnage from each of Impala, Marula and Two Rivers, equivalent to approximately 26,000 ounces of 6E mine-to-market concentrate production during the quarter,” Impala said in its quarterly report.
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.
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.
“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.”
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):
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.
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.
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.”
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.
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.