Gold on a tear as dollar weakens – silver being left behind

Article first published on the Sharps Pixley website, and lightly edited here, looking at the strong performance of gold over the past week, but also the weakening of the U.S. dollar index.

Since Donald Trump assumed the Presidency of the world’s richest and most powerful nation, the US dollar index (relating the dollar to a basket of other currencies) has fallen by around 11% accounting for much of the increase in the gold price in US dollar terms.  By contrast, the gold price in Euros has actually fallen by 1% over the past year, so what may appear to have been an appreciation in the gold price has been more a reflection of the depreciation in the value of the supposedly mighty US dollar.  It’s only that most people around the world look primarily at movements in the gold price in the US dollar – as we do in the title of this article – that the gold price is seen as actually having advanced.

But gold in US dollar terms does provide a useful benchmark as over time the dollar is probably the world’s most stable currency and is, for most nations, their primary reserve currency in their foreign exchange holdings.

This relationship between gold and the US dollar, with the former providing perhaps the most overt indication of how the greenback is doing vis-à-vis other currencies is the reasoning behind what seems to be an ever-increasing view that the powers-that-be collude to suppress the gold price to hide what is an overall indicator in the decline of the dollar’s purchasing power.

Some put this decline at upwards of 80% since President Nixon severed the convertibility of the dollar for gold to protect US gold reserves. In some sectors of the economy this decline is readily apparent.  Grocery shopping, property prices, salary levels etc.  In others less so, notably transportation and electronics, but in general $100 today would only buy you a fraction of what you could have purchased with $100 in 1971.

But it’s not only the purchasing power of the dollar which has been in decline.  The same is true of virtually any nation’s currency.  All currencies nowadays are fiat in that they have no backing, which is why some economists call for a return to a gold standard.  This is probably impractical without a massive gold price increase and, even then, would probably be overrun very quickly by ever increasing consumer demand for goods and services.

There is also talk of China trying to introduce some kind of gold backing for the renminbi (yuan) at some time in the future thereby leapfrogging the dollar as the world’s go-to currency, but this is probably more a theory than a likely eventuality.  It is seen as the reason China is assumed by many to be building its gold reserves at a far higher rate than it has been reporting, but this may also, if true, be just as support for a future petro-yuan – with the yuan exchangeable for gold – as a very competitive Chinese bid to replace the petrodollar!

So perhaps gold investors should treat the latest rise in the gold price purely as a wealth protection exercise.  That is what gold is good at over time.  If the dollar declines further then gold will rise further, as will all the major precious metals – and most other commodities too.  Changes in prices over  the 47 years since President Nixon stopped dollar convertibility are self evident, but in geographic areas like Europe where currency purchasing power has diminished similarly the imposition of a new currency, and/or the implementation of other changes like decimalisation in the UK, have made direct comparisons that much harder for the peerson in the street to relate to.

But regardless, gold has moved up sharply in dollar terms in the past few days despite mixed economic data out of the USA.  Much of this increase so far seems to have passed silver by and the gold:silver ratio has actually risen a little standing at close to 78 at the time of writing, although silver has been making a bit of a late run ahead of the weekend as have platinum and palladium.

We still stand by our forecast that the gold:silver ratio will come down to 70 or lower during the course of the year which would make silver potentially a better investment than gold if it does follow its historic pattern and rise faster than gold when the latter is on the increase.  At the moment we see no reason to change our forecast for gold to hit $1,425 or thereabouts this year and silver $20.50.  As I stated in the article in which I made these predictions- Precious metals price predictions for 2018 – gold, silver, pgms – I look at these forecasts as being conservative and if the dollar continues to fall and precious metals prices to rise sharply. as they have this past week, then I may see the need to adjust the forecasts – at least in US dollar terms.  However, also bear in mind that gold and silver had a strong start in 2017, but then tended to pull back.  2018 could see a repeat of this pattern, although I don’t see palladium making the kind of gains it did last year.

For those interested in my precious metals stock price forecasts for the year ahead do look at a series of articles i have published on Seekingalpha.com.  

The terms and conditions for publication of articles on Seeking Alpha prevent me from posting them here, but follow the links to read them on that site.

Gold, Silver, Platinum, Palladium – Price And Stock Forecasts/Recommendations For 2018

Precious Metals Stock Performance And Recommendations Update

Top Silver Stock Suggestions For The Year Ahead

 

Advertisements

Dollar being allowed to fall; Gold rising

A pre-New Year article published on the Sharps Pixley website – and since posting gold has moved up further and the US dollar fallen some more.  The original article – shown below, also pointed to a disappointing performance by silver at the time, but since it was written silver has also picked up nicely and the Gold:Silver ratio come back to below 77.

Dollar being allowed to fall; Gold up; Silver disappoints so far

Original article published December 29th on Sharps Pixley website

As the final trading session of the year is already under way in Europe and has just begun in North America, precious metals are trending higher, but most of the increase is due to the gradual decline in the dollar index (DXY).  Since end 2016 the DXY has been allowed to drop from 102.65 on December 29th last year to 92.29 as I write on December 29th this year.  That is a fall of around 10%.  Again as I write, the gold price in the US dollar is up around 12% over the full year after its recent rally.  Silver, on the other hand, is only up a little over 4% over the same period – a particularly disappointing experience for the silver investor given that historically silver tends to outperform gold in a rising gold market.

Silver though is, or should be, somewhat anomalous vis-a-vis gold as it is much more of an industrial metal, although its performance as such may not be the real reason it has underperformed its sibling precious metal in 2017.  Silver is a much smaller market than gold and its price can thus be even more subject to futures trading patterns where big money is involved.  Silver followers reckon the price is being manipulated in a major way on the futures markets and point to the huge short positions taken in the metal by the big bullion banks and traders as being key to the price patterns.  These big shorts do not relate easily to some huge accumulations of physical metal by the same big banks that dominate these short positions – a point being made continuously by silver analyst Ted Butler (probably the world’s No. 1 expert on this anomalous situation) who reckons the activity in the silver markets by the big players – notably by JP Morgan – is, in effect, a criminal activity to which the market regulators continue to turn a blind eye.

Of course gold bulls also see the gold market as being manipulated too by many of the same players as in the silver market.  But here the motivation, if the gold price is indeed being held down, may be in support of governments and the dollar given the huge global debt position.  The gold price is considered by many as a bellwether for the state of the economy and a big rise in gold could be seen as a huge fall in confidence in global economic management.  That does not suit the big money and the markets, let alone government policies.  Whether there is collusion between major governments/central banks and the bullion banks to keep the gold price suppressed remains arguable, although there is considerable evidence to suggest that this has indeed been policy in the past and thus probably still is the case today.

The big question today is whether gold will indeed stay back above $1,300 on the year’s final trading day and what will happen when trading resumes in the New Year.  Silver could also possibly break back up through $17 and as I write gold has indeed breached $1,300 and silver looks well placed to break out above $17. These price advances have survived the New York market open and whether they will survive the full trading period at these levels remains to be seen, but the force is certainly with them at the moment.  Gold at $1,300 and silver at $17 would put the gold:silver ratio (GSR) at 76.5 which is certainly not unreasonable given that the GSR has ranged between  around 67.7 and 79.4 over the past year.  Indeed we have gone on record as suggesting the GSR will come down to 70 during the year.  Some feel this is a very conservative prediction.

Platinum is also moving up along with the other precious metals apart from palladium which has come off a few dollars.  We think there’s a good chance that platinum will be back at a higher price than palladium by the end of 2018, although I have received a recent email from former Stillwater CEO, Frank McAllister, who would strongly disagree having published a paper back in 2012 that palladium and platinum should at least be on a par with each other.  He further suggested that the demand for palladium in the autocatalyst sector could well drive its price ahead of platinum.  He has certainly been correct in this viewpoint.

Ted Butler’s latest theory, is also worthy of comment.  He avers that JP Morgan was in effect given a 10-year carte blanche by the U.S. Government and regulators as a reward for its assumption of the huge Bear Stearns short position in silver, at the government’s prompting, when that bank collapsed in the 2008 financial crisis.  That 10 year period will now be up in 2018 and, if Butler is correct in his suggestion, JP Morgan could now be in a position to reap multi-billion dollar rewards from unwinding some of its silver market activities.  Butler though has been permanently bullish on the silver price and some of his theorising, however well supported in fact, may just be wishful thinking.  BUT – he could also be correct and if he is there could be a run up in the silver price that would at least match that of 2011 when the metal peaked at just short of $50.  Silver investors will certainly be nailing their colours to that mast!  And if silver runs in this manner it could drag gold up with it too.  The tail wagging the dog!

There have been many changes in both the gold and silver markets over the past several years and most would seem to be price supportive – not least the continued flow of bullion from generally weaker hands in the West into stronger hands in the East.  Global gold production has probably peaked –it has certainly at least plateaued – and the year-end figures will be viewed with particular interest when they come in.  We would suspect global gold production in 2017 could be down as much as 1% overall.  It is falling in some countries, although still rising in others, but cutbacks in capital programmes and in exploration spending, particularly by some of the majors, suggest that there could be several years of declining global output, although not at a particularly high rate

Eastern demand appears to be holding up fairly well.  While neither of the two leading consumers – China and India – are importing gold at their past record levels, demand appears to have been increasing in 2017 over that of 2016 and we would expect that trend to continue along with the gradual increase in percentages of their populations falling into the middle class (and potentially gold-buying) categories – a growth that is being echoed around the world.

Geopolitics could also be playing a role here, although the gold price has been showing little sign of any sustained upwards movement with some of the worrying events taking place around the world and President Trump’s seemingly increasingly combative rhetoric which could be considered destabilising.  However we have noted that the passing of major holidays often seems to mark an inflection point in market behaviour and perhaps Christmas 2017 is yet another one of these.  So far the portents for gold and the other precious metals look positive.  It remains to be seen how they play out through the year ahead.

For those interested in a follow up as the first day of 2018 trading has got under way in Asia and Europe, Click on:

 Gold and silver continue rising as dollar and bitcoin slip

Check out Seeking Alpha for my 2018 price predictions for gold, silver, platinum, palladium and precious metals stocks

My latest article on Seeking Alpha looks at the performance of my precious metals stock recommendations of a year ago – over half beat the record growth in the S&P 500, but some would have lost you money as well – and my new set of predictions for the year ahead.  Highlights as follows:

  • Precious metals stock picks made a year ago were mixed, but more than half beat the record growth in the S&P 500.
  • Most of the new 2018 precious metals stock picks are the same as those for 2017, but there are some deletions and additions.
  • Price forecasts for gold, silver, platinum and palladium, the dollar index

For the record looking for higher prices in the year ahead for gold, silver and platinum, but perhaps a fall back in palladium in the second half of  the year as we start seeing reverse substitution by platinum catalysts in the petrol (gasoline) section of autocatalyst manufacture due to the platinum price being lower than that of palladium.

Stock selections are virtually all in stocks which won’t collapse should precious metals not perform as expected.

To read the article on Seeking Alpha click on:

Gold, Silver, Platinum, Palladium – Price And Stock Forecasts/Recommendations For 2018

Palladium outperforming platinum – but for how long?

Another article – this time on pgms – published today on the www.sharpspixley.com website.

This morning, as I write, the palladium price is sitting at $1,024 an ounce, aided by a small fall in the dollar index following on from the latest statements from the U.S. Fed and the ECB, while platinum was at only $882 an ounce.  This is a massive deficit of almost 14% for the platinum group metal (pgm) which has for most of time been at a substantial premium over the former.

But can palladium’s price advantage be sustained?  The answer is almost certainly not in the medium to long term – while in the ultra long term the future for all the platinum group metals looks pretty bleak given the likely rise in Electric Vehicles (EVs) sales and a matching decline in Internal Combustion Engine (ICE) driven units.

The principal usage these days for palladium and platinum is as a catalyst in ICE exhaust emission control systems.  Platinum remains predominant in the diesel emissions control market, but diesel, in the car market has had a bad press and sales have been slipping, particularly in Europe and Asia, while it has never really taken off in the big U.S. automobile market.

Over time the then high price premium of platinum (once the preferred emissions control catalyst for all kinds of ICE driven vehicles) over palladium has led to the development of what was then far cheaper palladium/rhodium emissions control catalytic exhaust control system for the predominant petrol (gasoline) driven car market.  But how long can this last with palladium and rhodium commanding the premium price slot?

It is true that palladium demand appears to be in a substantial deficit at the moment, thus accounting for the rapid price advance for palladium which as risen in price by some 40% this year.  However  a switch back by manufacturers to what appears to be a marginally more efficient platinum-based catalytic converter system, which would be currently considerably less costly given comparative pgm prices, could well mean that platinum demand will rise and palladium will fall.  This will take time, but the longer palladium remains at a price premium over platinum the bigger the incentive to switch back to a platinum-based catalyst system.  Gearing up to a reverse switch of this type could happen far more quickly than is currently anticipated given the manufacturers of emission control catalytic systems are already producing platinum based systems for the diesel market.

The global ICE-driven vehicle market is enormous, and likely to remain so until early in the next decade at least, despite an increasing take up of EVs.  This will not happen overnight and ICE-driven cars are expected to dominate the auto market for at least the next ten years, although beyond that we see EVs becoming dominant and demand for platinum, palladium and rhodium slipping away – drastically as the trend to EVs continues.  But that still leaves a good few years when pgms will remain dominant in the sector – but which ones?

There is also perhaps a better correlation between platinum and gold prices, with increases in the latter tending to drive similar increases in the former.  Historically the platinum price has been higher than that of gold most of the time, and some analysts suggest that that price premium could re-appear – although this writer would disagree with that argument given the potential long term decline in pgm demand noted above.  But if the gold price does rise over the next few years, as we anticipate, it seems more likely to drag platinum up with it than palladium, given the stronger jewellery demand for the former.  But then if platinum again becomes more expensive than palladium we could see the exhaust catalyst demand switch around yet again, assuming the current price differential does lead to perhaps a temporary platinum demand dominance again.  But this may all happen too late for the ultra-long term futures for either metal.  They will both suffer from what we see as the inevitable rise of the EV in the personal transportation sector – and ultimately in the heavy truck sector too, although this may be slower to come about.

Palladium and Rhodium on Fire, is Platinum Next?

by: Clint Siegner*

Platinum was once the most precious of metals. For decades, it traded at a premium to gold. The other platinum group metals – palladium and rhodium – barely registered on investors’ radar screens.

Platinum lost its crown to gold in 2015. It was overtaken by the other PGM metals in recent weeks.

Given that platinum, palladium, and rhodium demand is largely driven by automobile manufacturing and the production of catalytic converters, one of these things is likely true; platinum is currently undervalued, or the other two have gotten ahead of themselves.

1 Oz Rhodium Bars

1 oz rhodium bars run about $1,455 each.

Which one is the correct assessment will depend on whether the current optimism for economic growth in both developed economies and emerging markets has been well placed. Either way, investors inclined to speculate on the PGM metals have some interesting market action upon which to trade.

Platinum does look remarkably underappreciated. It is hard to imagine it trading at a significant discount for too long.

Auto makers should bid for whichever metal offers the lowest cost as all three are somewhat interchangeable.

Platinum offers the largest and most liquid market of the group. It is widely available in a variety of coins and bars. For investors, platinum’s liquidity is a consideration.

However, momentum traders may want to take a look at rhodium. It is traded in relatively tiny quantities and has a history of making big moves. Rhodium saw a top near $4,000 in the early 1990s and it made a run north of $2,000 about 10 years later. It peaked at $10,000 per ounce in 2008.

Although rhodium has doubled in the past year, it currently trades just over $1,300.

The metal’s pattern of having a sharp spike roughly once every 10 years is interesting. It is possible we are in the middle of another of those massive moves now.

New York Price for Rhodium Chart

Rhodium is available primarily in 1 ounce bars. While the quantity of rhodium traded is by far the lowest among precious metals, market liquidity for that metal has seen a boost since 2008. There are now a couple of ETFs focused on the metal. Those ETFs may in fact be driving a good portion of the recent demand.

Editor’s note:  The Platinum Group Metal  pricing patterns are primarily based on supply/demand fundamentals, not on rarity of the metals in the earth’s crust.  Rhodium and palladium are running high as they are both in a substantial supply deficit situation while platinum supply and demand are much closer balanced.  Palladium, with a little rhodium, is currently the preferred catalyst for gasoline-powered internal combustion engine emission control catalytic converters, having largely succeeded platinum in this usage, but this was due to palladium being substantially less costly than platinum – that is until palladium’s (and rhodium’s) recent run.  The big question now is: is platinum, being the cheaper metal, going to make a dent in palladium’s current predominance as the catalytic metal of choice for gasoline powered engines.  It is already the dominant catalytic metal for diesel exhaust emission control.  

Political Risk Building into the Gold Market? The Holmes SWOT

By Frank Holmes – CEO and Chief Investment Officer, US Global Investors

Strengths

  • The best performing precious metal for the week was palladium, up 5.49 percent.  Citigroup forecast that platinum could see a deficit of 172,000 ounces in 2016, but palladium’s deficit could be short by 847,000 ounces, thus the group is more bullish on the later.
  • Esturo Honda, who according to Bloomberg News has emerged as a matchmaker for Prime Minister Shinzo Abe in finding foreign economic experts to offer policy guidance, is opening his ears to Ben Bernanke.  In April, Bernanke noted that helicopter money, in which “the government issues non-marketable perpetual bonds with no maturity date and the Bank of Japan directly buys them,” could work as the strongest tool to overcome deflation, says Honda.
  • Francisco Blanch, head of commodities research at Bank of America Merrill Lynch, says there is political risk building into the gold market, including the Italian referendum and U.S., French and German elections. Blanch adds that in the past, gold used to be driven more by the U.S. dollar and commodity market movements, but “in this day and age, it’s a new world.” He also mentions that one-third of government bonds are yielding negative. The chart below shows that $9.2 trillion of sovereign bonds are trading with negative yields.

swot4
Weaknesses

  • The worst performing precious metal for the week was silver, down -2.97 percent.  With silver generally more volatile than gold, a strong rally in stocks, up 10 of the last 11 days and with new record highs, had investors chasing returns in the broader market.
  • Gold traders and analysts are bearish for the first time in four weeks, reports Bloomberg. The precious metal headed for its first back-to-back weekly decline since May, with gains in equity markets and the dollar hurting prices. David Meger, director of metals trading at High Ridge Futures in Chicago, says that the dollar’s strength continues to pressure most commodities, gold in particular. “Safe-haven demand has been diminishing, obviously with equity markets moving to new record highs,” Meger said.
  • A group of armed men stormed one of Agnico Eagle’s mines in northern Mexico early Tuesday morning, reports the Canadian mining company, injuring a security guard and making off with a haul of gold and silver. Last April a similar situation occurred when armed men entered McEwen Mining’s El Gallo 1 mine in northern Mexico, reports Reuters, even though thefts within mines are “relatively rare in Mexico.”

Opportunities

  • The World Gold Council and the Accounting and Auditing Organization for Islamic Financial Institutions are drafting new standards for investing in gold to comply with Sharia law, reports an Energy and Capital article. If the proposals for the changes (expected in the fourth quarter) are accepted, a flood of new investors could help send gold prices soaring, the article continues. A similar situation took gold prices to $1,900 in 2011 when surging demand came from China following the government’s urge for its citizens to own the yellow metal.
  • With the U.S. presidential election seen as the next big catalyst, Bill Beament of Northern Star Resources believes that gold’s rally is set to endure, reports Bloomberg. He says the overall trend is up and that “the U.S. vote will have more of an impact on bullion than the U.K. referendum.” The IMF also scrapped its forecast for a pickup in global growth, the article continues, yet another positive for gold.
  • Commerzbank raised its year-end gold estimate by $100, reports Bloomberg, to $1,450 an ounce. Similarly, DBS Group Holdings says that gold is in a major bull market and could surge past $1,500 an ounce as “low interest rates buoy demand and the U.S. presidential election looms.” The long-term gold price has been adjusted higher at Numis Securities as well, up to $1,400 an ounce from $1,350 an ounce.  While it’s good to see the street starting to take their price forecast higher for gold, investors should remain disciplined as the late summer can be a seasonally weak period for prices and many of the expected price targets being raised are capitulation moves to higher price levels.

Threats

  • According to data compiled by Bloomberg, investors pulled $793 million out of SPDR Gold Shares last week, the most since November. As Citigroup’s U.S. Economic Surprise Index rose to its highest since January 2015 (a sign of an improving economic outlook), demand for ETFs backed by gold has diminished some. Holdings in gold-backed ETFs around the world fell 3.9 metric tons last week, reports Bloomberg.
  • Sovereign gold bonds issued in India were trading at a 27-percent premium over the fixed price when the bonds were first issued in November, reports LiveMint. Prices of physical gold have risen 23 percent during the same period. According to the article, “Investors get a fixed interest rate of 2.75 percent per annum on these bonds over and above the capital gains that may accrue if the price of gold rises in the spot market.” The gold bonds are part of the government’s gold monetization efforts aimed to “wean the public off physical gold.”
  •  Will gold miners maintain their capital discipline? Bloomberg reports that as the price of gold rises to its best first half of the year in nearly four decades, earnings reports could indicate that miners are preparing to ease in terms of spending. “Historically there’s been a very high correlation, almost a one-to-one correlation, between costs and the gold price, implying that with higher gold prices you will likely see costs rise at the same time,” Josh Wolfson of Dundee Capital Markets said. Wolfson added that a majority of miners structured spending based on the assumption that gold will trade between $1,100 and $1,150 an ounce.  Let’s hope the miners learned something over the prior three painful years of falling gold prices.

Japanese selling yen to buy gold- The Holmes SWOT

By Frank Holmes – CEO and Chief Investment Officer, US Global Investors

Strengths

  • The best performing precious metal for the week was palladium, up 4.89 percent. Wage negotiations started this week in South Africa with opening demands including a 15 percent hike for the highest paid employees and a 47 percent hike for the lowest paid. With the threat of possible strikes in South Africa and a 19-percent rise in auto sales in China reported for June, related to tax cuts on auto purchases, we could see further upside in palladium prices.
  • “Gold is the unprintable currency, unlike the yen,” said Itsuo Toshima, former regional manager for the World Gold Council in Tokyo. According to Bloomberg News, Abenomics skeptics are selling the yen to buy this unprintable currency – gold. Individual investors drove a 60 percent jump in sales of the precious metal in June from May at Tanaka Holdings, the operator of Japan’s largest bullion retailer.

swot3

  • Tanaka Holdings announced this week its plan to buy Metalor Technologies International SA, a privately held Swiss precious metals refiner, reports Reuters, expanding into precious metals recovery and refinery in Europe, North America and Asia. The aim is to boost Tanaka’s business as local growth stagnates due to a falling population by expanding their presence in the supply chain. No terms were given yet in the statement.

Weaknesses

  • The worst performing precious metal for the week was gold with a loss of 2.11 percent. At the end of last week, the net long gold futures position on the COMEX had reached an all-time high, when we were in line for a possible correction. Interestingly, gold equities did not fall as much as the gold price over the past week.
  • Gold assets held in the world’s largest ETF backed by the metal, the SPDR Gold Shares fund, dropped the most in three years, reports Bloomberg. Holdings fell 16 metric tons to 965.22 metric tons on Tuesday as U.S. equity markets reached record highs. Following the U.K.’s decision to keep rates at 0.5 percent, gold dropped to a two-week low. The outlook for more central bank stimulus is curbing demand for the metal as a haven, notes Bloomberg, while a decline in demand from jewelers and retailers is also pushing the price lower.
  • Gold was also impacted by a strong U.S. jobs report against signs of risks to the global economy, reports Bloomberg. Payroll data exceeded analysts’ expectations, buoying stocks and other risky assets, the article continues. In related news, SoGen announced Monday that gold producers expanded the hedge book 1.6m ounces in the first quarter, and stood at delta-adjusted 8.7m ounces at March 31. The majority of net hedging in the first quarter came from Newcrest and Polyus Gold.

Opportunities

  • In its Global Gold Outlook this week, RBC Capital Markets increased its gold price assumption from $1,300 to $1,500 in 2017 and 2018, which is 12 percent above the current spot price. Citing one of the key gold price drivers, RBC notes that “a negative real rate of -1.0 percent suggests a $1,546 gold price.” Bank of America agrees that the yellow metal could move higher, stating that gold is headed to $1,500 an ounce, while also pointing out that silver can overshoot $30 an ounce. A combination of a weaker U.S. dollar and previously deferred demand from Asia should support the gold price in the second half of the year, according to a report from Citi analysts.
  • Jeff Gundlach of DoubleLine Capital discussed his investment portfolio with Barron’s this week, the composition of which ZeroHedge broke down as follows: “high-quality bonds, gold, and some cash.” In response to inquiries about what kind of portfolio is he running, Gundlach said the following: “I say it’s one that is outperforming everybody else’s…Most people think this is a dead-money portfolio. They’ve got it wrong. The dead-money portfolio is the S&P 500.”
  • Klondex Mines reported its preliminary quarterly production results this week of 41,436 ounces, according to a statement released by the company. This apparently beat expectations as the stock rose better than 1 percent this week while the averages were down almost 2 percent. Jaguar Mining also reported strong second quarter production this week of 24,222 ounces of gold, a 17 percent increase year-over-year. The company also cited high-grade gold mineralization recently encountered, confirming downward extension at depth at its Turmalina gold mine. Jaguar says the drill results provide potential to upgrade current inferred resources to higher category.

Threats

  • For the first time ever, Germany issued a 10-year bond at a negative interest on Wednesday, selling more than 4.0 billion euros with a yield of minus 0.05 percent, reports the Bundesbank. Negative interest rates in Japan are also present, and seem to be backfiring in a big way, reports Bloomberg. The article reads, “Instead of encouraging spending, people are stashing their cash in safes, with sales of house safes increasing 250 percent over the last year.” What’s even more troublesome, is many elderly Japanese people are purposely committing crimes to end up in prison – a place with free food and health care, since negative rates are eating up their savings.
  • In Brazil, bitcoin seems to be gaining more and more momentum, reports NewsBTC.com. The digital currency trading volumes in Brazil have actually surpassed that of gold in the last six months. “The recent rise in bitcoin prices from about $450 to over $700 before stabilizing at around $650 is attributed to increased demand in the Chinese market, Brexit and other external factors,” the article reads.
  • According to portfolio strategist Martin Roberge of Canaccord, gold could correct in the summer. Roberge noted that gold stocks have outperformed the broader S&P/TSX Composite Index by 71 percent this year, and while this does not mean the bull market is over, he believes this kind of run is usually followed by a “higher risk” phase.

Gold soars to 2-year high: The Holmes Gold SWOT

By Frank Holmes, CEO & Chief Investment Officer, U.S. Global Investors

Strengths
  • The best performing precious metal for the week was palladium, rising 2.24 percent. Palladium surged early in the week, doing just the opposite of gold, when polls indicated British voters were more likely to vote “remain” in the Brexit referendum, thus economic uncertainty would be maintained.
  • However, the palladium price dropped on Friday as gold soared to a two-year high following the U.K.’s vote to exit the European Union, boosting haven demand. According to Bloomberg, U.K. voters backed leaving the EU by 52 percent to 48 percent, causing turmoil across markets and prompting Prime Minister David Cameron to resign.
  • Gold dealers in London say they have never seen anything like it, describing the rush from consumers to sell gold, and many more to buy the precious metal following the U.K.’s vote to exit the EU. “We’re doing 10 times the business we normally do,” said Michael Cooper, commercial director of ATS Bullion Ltd. BullionVault saw its busiest day ever on Friday, reports Bloomberg.
 Weaknesses
  • Despite the surge in gold prices on Friday following the U.K. vote, it was the worst performing precious metal for the week, although still up 1.43 percent. Gold backed ETFs have seen a surge in assets this year as investors have started to discount that political leaders at the central banks around the world have lost their mojo, as you can see in the chart below.

HGS276

  • Gold experienced weakness most of the week, falling for the first four days of the week as polls on the Brexit referendum showed uneven results. Gold tumbled by the most in almost a month as other polls on Monday showed voters tilting toward remaining in the EU.
  • Kinross Gold Corp. temporarily halted mining at its Tasiast mine in Mauritania, reports Bloomberg, after the Ministry of Labor banned some of its expatriate workers from the site due to invalid work permits. The stoppage comes a week after a three-week strike by unionized workers ended at the mine, one Seeking Alpha article points out.
Opportunities
  • According to the median of 12 forecasts in a Bloomberg survey of analysts and traders from New York to Canada, gold prices could reach as high as $1,424 an ounce by year end, reports Bloomberg. “The Brexit referendum lowered the probability for an interest rate hike,” said commodity analyst Thorsten Proettel. Low rates are a boon to gold because it increases the metal’s appeal as a store of value, the article continues..
  • Capital spending by gold producers has been decimated, writes Sean Gilmartin at Bloomberg, which will lead to a long-term decline in the mine supply of the metal. According to UBS, high quality gold equities still offer attractive leverage to gold price upside, and will outperform physical gold in a rising price environment. Other opportunities for the metal come in the mergers and acquisitions space, reports the Financial Review, particularly in the West African-focused gold space driven by strong acquirers out of North America. In an all-share deal, Teranga Gold made an offer to buy Gryphon Minerals, boosting its share price by 22 percent on the news.
  • Hartley’s reports on Burey Gold Limited this week, noting the company’s release of significant drilling results from its maiden RC drilling program in the northern zone of its Giro project. Highlights include 2 meters at 196 grams per ton from 12 meters, and 15 meters at 255.6 grams per ton from 15 meters. Additional results include 33 meters at 6.1 grams per ton from surface and 12 meters at 21.2 grams per ton from 3 meters. Hartley’s writes “These results confirm our opinion that the Giro project has potential to define a company-making asset particularly given these significant high grade results.”
Threats
  • Physical demand for gold out of both India and China was tepid during the first half of the year, reports Bloomberg. Demand was historically weak in India, with the discount averaging $25 an ounce in 1H versus $8 a year ago. Also contributing to the overall weakness was a poor farming year in India, continues the article, yielding less disposable income for Indians to buy gold.
  • Although a vote for Brexit will benefit gold, reports SocGen, other commodities such as copper and oil could suffer. Mark Keenan, SocGen Asia head of commodities, points out that a rising U.S. dollar will depress metals such as copper, and risk aversion may hurt oil.
  • In a note from Sovereign Man this week, the author reflects on how much has changed since the publication started seven years ago. He points out that U.S. government debt soared 70 percent, that the Federal Reserve’s balance sheet more than doubled, and that the U.S. government has been caught red-handed spying on everyone – all in seven years’ time. “We’ve seen an appalling rise in police violence and Civil Asset Forfeiture to the point that the U.S. government now steals more than every thief in America combined,” he continues. Perhaps Donald Trump is right in that Mexico will pay to build a wall on its northern border, which is to keep Americans from crossing illegally into Mexico.

 

Platinum and palladium outlook – Big deficits ahead but will they make any difference to prices?

We have seen three major reports out for London’s Platinum Week from Metals Focus, GFMS and the WPIC.  They all offer comprehensive analyses in text, tabular form and graphical content of various aspects of the markets and they are a hugely valuable resource for followers of the pgms sector.   There are definite differences of opinion on the relative supply and demand scenarios for platinum in particular in 2015, but all three analyses are predicting supply deficits ahead for the two major pgms, but on past performance such seemingly strong fundamentals may have little impact on prices.

The latest to report was Metals Focus with its inaugural Platinum & Palladium Focus 2016, a comprehensive 78 page long analysis of the platinum and palladium markets.  In many respects it appears to this observer to offer the most realistic appraisal of the markets and likely price performance for the two major platinum group metals (pgms).

A couple of articles I’ve published on Sharpspixley.com on platinum group metals resulting from the release of these three very comprehensive reports on the sector  are linked here:

Platinum and palladium supply deficits ahead, but will this impact prices?

Is platinum in surplus or deficit? Reports contradict.

Metals Focus’ Platinum & Palladium Focus 2016 may be requested free of charge by email from charles.demeester@metalsfocus.com 

 

 

 

Gold, silver and platinum rallying – The Holmes SWOT

Frank Holmes, CEO and Chief Investment Officer of U.S. Global Investors, gives us his latest report on Strengths, Weaknesses, Opportunities and Threats in the precious metals markets as reported in global media over the past week

Strengths

  • The best performing precious metal for the week was platinum, up 6.38 percent.  Platinum largely moved in sync with gold and silver price changes, but has recently outpaced its counterparts and has now begun to play a significant catch-up trade.
  • The Bank of Japan (BOJ) opted against boosting stimulus this week, in a decision that battered the U.S. dollar and gave gold a surprise lift, reports Bloomberg. The Japanese yen also reacted to the bank’s decision, surging the most since the 2010 stock-market meltdown. On Wednesday, the Federal Reserve left its benchmark rate unchanged too, helping to boost the yellow metal.
  • According to the South China Morning Post, the Chinese Gold and Silver Exchange Society plans to set up a gold vault and office in Qianhai. This will be the biggest in Hong Kong investment in the special economic zone in Shenzhen, reports Bloomberg.  Jeremy Wrathall, Investec’s Global Head of Natural Resources, thinks that gold is likely to be the best performer among global metals and minerals for 2016, reports Lawrie Williams.

Weaknesses

  • The worst performing precious metal for the week was palladium, still up 3.93 percent, and not far behind the other precious metals (all of which closed in positive territory). Palladium was the best performer in the precious metals group last week, when it closed up 5.99 percent.
  • Commodity exchanges boosted margin requirements on more products, reports Bloomberg, sending stocks in China to the lowest in a month. “The boom in the commodity markets isn’t a good thing for stocks as that will distract some investors and divert money away from the stock market,” said Wu Kan, a fund manager at JK Life Insurance in Shanghai.
  • The metals and mining sector is the top performer in both high-grade and high-yield indexes this year, according to BI Senior Credit Analyst Richard Bourke. But has the rally in metals and mining bonds come too far, too fast? An analysis of commodity spot prices shows that they are all above consensus forecast price, and may portend a correction.

Opportunities

  • RBC Capital Markets released a research piece on its gold companies under coverage on Monday, explaining that a decline in production and growth expenditures is expected in 2016. Overall gold production of the North American companies listed in the report, is expected to decline by 7 percent year-over-year. Exploration and expenditure budgets continue to face downward pressure as well, leading to an ongoing decline in reserve lives. While this may appear negative at first glance, the forecast should bode well for acquisition activity to pick up later this year in a heated gold market.
  • HSBC has been bullish on gold since 2015 and the group believes that the strong rally this year could continue. In addition to gold’s inverse relationship with the U.S. dollar, HSBC points out that the group’s counter-consensus view of a strong euro, along with the expectation for the euro-dollar to continue trading higher.  Investors may also take a gold position to hedge against the upcoming UK vote to exit European Union membership.
  • Paradigm Capital released a comprehensive and informative research note this week, focusing on gold equities and opportunities to be found for the generalist. The group highlights negative interest rates and central banks buying gold (rather than selling it) as a few reasons why this up-cycle is different. Paradigm also states that “Producing gold is a better business than most today, one with expanding margins, yet gold equities still offer excellent relative value.”  In the chart below, this shows the long-term price relationship between gold bullion and gold mining stocks.  One can observe that the gold miner valuations are currently substantially depressed relative to the change in gold prices.

SWOT 2-5

Threats

  • Earlier this month, Deutsche Bank admitted to manipulation of the gold and silver price fix, agreeing to turn in any information about other banks’ wrongdoings over to the authorities. In an article from ZeroHedge this week, the group reminds its readers that the CFTC in 2013 closed its five-year investigation concerning these allegations, proudly stating there was no evidence of wrongdoing. Fast forward to April 22, 2016. The CFTC and its director have come out saying they were unaware of the DB story, finding no reference to it in the commission’s file of “news reports of interest.”
  • Could silver’s upswing be due for a correction? Another article from ZeroHedge this week points out that an old indicator, the commitment of traders report (COT), has been a pretty reliable gauge for precious metals’ “short-term trajectory.” However, since speculators are “exuberantly long” silver at this time, this could imply that a correction is coming.
  • Although no one is predicting a heavy fall for precious metals, a commodity specialist from the Industrial and Commercial Bank of China (ICBC Standard) thinks now is probably not the time to buy, reports News Markets. The bank pinpoints an already crowded market for this trade, as speculators have increased their long positions.

 

My recent articles published on other sites – on palladium and the Gold:Silver ratio

As readers of lawrieongold.com will already know, I also write for other websites and usually the terms of so doing are that I can’t publish those full articles here as well – but I can publish synopses and links so you can read the full articles on the other sites.

So here are a couple of articles I’ve published over the past couple of days on Sharpspixley.com

The first is an article on palladium the metal virtually all the mainstream analysts reckoned would be the best performing precious metal last year – but it turned out to be the worst performer in the precious metals complex – so don’t believe what the mainstream analysts tell you.  They are wrong probably as often as they are right!

Excerpt:

In its latest weekly newsletter to clients, London’s Metals Focus consultancy looks at palladium’s almost horrendous fall from grace pricewise and asks the question : Palladium’s dismal performance: buying opportunity or trend?  

Indeed palladium is a terrific example of markets trumping analysts and that in these days of High Frequency Trading and enormous speculation on the futures markets, it is other factors than fundamentals that really move the prices in a relatively small market like that for palladium.  Last year virtually every precious metals analyst out there was predicting that palladium would be by far the strongest performing precious metal as its fundamentals looked so positive.  In the event it was about the worst performer of all.  You can’t rely on the analysts to make you money in these hugely manipulated markets where futures, coupled with high frequency trading, and a major degree of investor sentiment, really call the tune…..

To read the full article on Sharpspixley.com click here

The second looks at the Gold:Silver ratio and the silver price, and how it is very much tied to gold’s performance, but with more volatility.

Excerpt:

The gold:silver ratio (GSR), much followed mainly by silver investors convinced that one day it will come down to its reputed historical level of 16:1, remains languishing in the high 70s.  Personally I doubt whether we will ever see the 16:1 level again – certainly not in my lifetime (but I am getting old!)  Apart from the very brief silver price spike when the Hunt Brothers tried to corner the silver market (and almost succeeded before being brought down and bankrupted) the GSR has moved since then in the range of 31.5 (a very shortlived spike downwards coinciding with the brief silver price peak in April 2011) and close to 100.  As I write it is standing at 77.6.

Silver, sometimes known in the trade as ‘the devil’s metal’ is renowned for its price volatility. The fact is, that in most views, it can no longer be really considered a monetary metal per se.  There is, though, still a substantial trade in officially issued silver coins which does, I suppose, give it some kind of monetary credibility although the sale value thereof tends to be substantially higher than any face value that may be put on them.  They are minted very much for the investment market.  But overall principal global demand for silver is industrial so the price movement relationship with gold is not necessarily a logical one – but it is ongoing nonetheless….

To read the full article click here

Gold, silver, pgms news headlines from Sharps Pixley

Gold News
Silver News
PGMS NEWS

Buy Gold From SharpsPixley.com

LBMA’s panel of experts’ views on gold, silver, platinum and palladium in 2015

Each year The London Bullion Market Association (LBMA) organises a competition whereby it invites a number of professional analysts, mostly from banks and other financial institutions, to predict precious metals prices for the year ahead.  This year it received entries from a record 35 such analysts and one would think the accumulated expertise, averaged out, might be a great indicator of what is to happen in the year ahead.  But, be warned,  on past performances this is sometimes far from  the case.  The individuals are also asked to give their reasons for their predictions and these make for some interesting reading.  The full resultant ‘survey is available for download directly from the LBMA by clicking on this link.

A slightly edited version of the executive summary for the competition entries and averages is set out below:

LBMAtab

Tabulation courtesy of the LBMA

This year’s LBMA forecast contributors are predicting that the gold price will remain broadly flat in 2015, but are more bullish (marginally) on the price prospects of the other precious metals forecasting increases of 2.1% (silver), 5.6% (platinum) and 5.3% (palladium) from that prevailing over the first two weeks of the year. Ross Norman of Sharps Pixley is the most bullish analyst with his forecast of $1,321 for the average gold price which gives him a great advantage should the gold price take off this year as anything above this level will gain him victory in the gold price competition and add to his impressive tally of past first places.  Adam Myers of Credit Agricole the most bearish with $950 and he again would benefit should the gold price take a really big dive this year and end amongst the debris promulgated by the out and out anti-gold brigade.

(For the record, here at LawrieOnGold we do believe that there are enough positive factors out there for gold that Ross Norman’s prediction could even be conservative and that Adam  Myers’ bleak forecast, which if it came about would probably drive 50% of the world’s gold mines into serious deficit and likely closure, is the most unlikely result for the year.  But we shall see.)

The analysts cite a number of factors which they see as likely to restrain gold prices in 2015, including the possible further strengthening in the US dollar, interest rate hikes by the Fed possibly commencing  in the second half of 2015, QE programmes in Europe (although some see this as gold positive) and a weak oil price reducing gold’s attraction as a hedge against inflation.  But the price could be supported by strong retail demand from China, India and elsewhere but only limited support is expected this year from the official sector suggesting a decline in Central Bank purchases.

Analysts are slightly more optimistic about the prospects of silver in 2015, forecasting a modest increase in price of 2.1% to $16.76/oz, with prices forecast to trade in an average range of $13.91 to $19.36. Ross Norman is again the most bullish ($18.56) with Robin Bahr of SocGen the most bearish ($13). Negative price factors again include expected strengthening of the dollar, disinflation as well as slow growth from China and the Eurozone thus affecting industrial demand for the metal. But some positive factors which could lend support to prices include expected additional global investment in solar power, continued support of silver ETFs and expectations that retail investors may take advantage of attractive prices.

Analysts are more bullish about the prospects of the platinum group metals in 2015 despite the current fall in the platinum price to below that of gold.  Platinum is expected to be the best performer with prices forecast to average $1,294 in 2015, 5.6% higher than its price in the first half of January although still 6.6% below its average price in 2014. Bart Melek of TD Securities offers the most bullish forecast of $1,434 and Glyn Stevens of International Commodities the most bearish at $1,098. Analysts cite positive influences on the price to include a supply deficit (despite expected improvement in South African production).  Rising costs might also push prices higher along with strong demand from China and industrial investors. On the negative side is the weak outlook for gold prices and macro-economic factors which are likely to act as a restraint on prices.

Palladium prices are forecast to average $838.40, up 5.3% from where it started the year and 4.4% above its average price in 2014. Rene Hochreiter of Sieberana Research is the most bullish with a forecast of $950 and again Glyn Stevens the most bearish with a forecast of $738. The palladium price is expected to benefit from a supply deficit as well as improving industrial demand and strong car sales in North America and China.

Overall all credit should be accorded to the analysts for setting precise forecasts out for all to see opening their judgements  up to negative comment should they end up being way out in their predictions. But then the kudos for being nearest to correct can bring some very positive accolades from their peers and followers.

To find out more about what the analysts predict will happen to prices for precious metals this year, and tables showing also their high and low price forecasts for the precious metals and what the factors are which are likely to affect their price, read their ‘expert’ views by clicking on the link noted at the start of the article and repeated here.

Gold fifth best performing commodity of 2014

Palladium did best in dollar terms of all commodities in 2014, while gold’s overall performance, while disappointing for gold bulls, was far better than most others.  Article now up on Mineweb.com – to read it and other global mining and metals news and comment there click on this link

Lawrie Williams

Before you gold bulls out there cry ‘rubbish’ it should be borne in mind that last year was a disastrous year in dollar terms for virtually all commodities across the board.  Only four internationally traded commodities showed gains over the year, while gold was the least bad negative performer among the rest with a drop of only 1.7% – but has now shot up nearly 10% since the start of the year.  Indeed, as we pointed out in a recent article, gold performed positively over 2014 in virtually every currency other than the U.S. dollar.  So despite being a disappointing year for dollar area gold bulls, it will have been a positive year in all non-dollar tied nations.

See:  Gold great value protector in 2014 – silver not

We are indebted to Frank Holmes and U.S. Global Investors for the graphic below which sets out the performance comparisons for the globally traded commodities since 2005.  It can be see that palladium, nickel, zinc and aluminium were the only commodities which showed gains in price – with palladium the comfortable winner for the year.  But gold, despite showing a small loss, performed hugely better than most other commodities like copper which was down a heavy 14% during the year.  But even this was a small fall compared with crude oil – down 46% – and natural gas – down 31%.  Even agricultural commodities like corn and wheat were down in price by much more than gold.  A larger high res pdf version of this table is available by clicking on this link.

pt chartWhile slower industrial growth than hoped in the West and the downturn in the Chinese economy primarily responsible for the weaker commodity prices, the prime culprit will have been the U.S. dollar which rose by 13% over the year against the basket of currencies against which the dollar index is measured.  So in most currencies other the reversal in fortunes for commodities would not have been nearly so bad.  While in dollar terms 2014 may well have seen the biggest commodity reversal in recent years (since 1986 in fact), in other currencies it will not have been nearly so bad.  As we pointed out in our earlier article on the subject  (see link at the start of this article), perhaps we are too fixated on the dollar as the reference baseline when making these kinds of judgements.  In the Russian ruble for example commodity prices will have been booming in 2014!

Palladium’s performance to buck the overall trend with a significant rise of more than 11% was partly due to a relatively buoyant global market for automobile sales, coupled with an assumed  supply deficit of over 1 million ounces in 2014 according to the platinum experts at Johnson Matthey.  However there didn’t appear to be any significant non-availability of metal presumably because stockpiles at the main users have been well maintained when prices were lower.  Platinum also saw a perhaps 1 million ounce deficit, largely due to the South African platinum mine strikes, but here the overall price still fell – perhaps because of additional supply coming out of the platinum ETFs.

 

LBMA top gold forecaster: gold price to average $1321 in 2015, silver $18.56

The annual LBMA precious metals price competition’s top gold forecaster over the years, Sharps Pixley’s Ross Norman, is bucking the mainstream analyst consensus with a $1321 average gold price forecast for 2015.  Silver $18.56, Platinum $1268, Palladium $876.  Slightly modified version of article posted to Mineweb.com – the website for the best global mining and metals news and comment.

Lawrence Williams

In his submissions to this year’s LBMA precious metals forecasting competition, Ross Norman who heads up London bullion broker Sharps Pixley, and who has been probably the most successful forecaster in the LBMA panel in the past, says he is going out on a limb with his forecast for the gold price average this year at $1321. (It would certainly have been out on a limb last month although perhaps seems less so now given the gold price performance so far this year.) He is also looking for a gold price high of $1450 and a low of $1170 during the year. With most of the forecasting panel being bank and institutional analysts, whose forecasts tend to be much more conservative – some would say decidedly bearish – Norman must have a good chance of adding to his wins if gold’s advances continue.  The LBMA is expected to publish its full listing of its annual competition forecasts later this week, along with the analyst participants’ reasons for their predictions.

Norman has been the outright winner of price forecasting sections of the LBMA competition five times in the past  – usually by ‘going out on a limb’ which was a pretty good policy when the gold price was in its bull market phase  Norman has also had numerous Top 10 positions.  Perhaps he tends to favour the more bullish trends so will he be back on track again this year?  If the current momentum in the gold price gathers more strength still his forecasts could even prove conservative but it would perhaps be foolhardy to automatically assume that gold’s good start to the year will not beget a serious correction at some stage later on.

Norman’s stated reasons for his fairly positive predictions on gold this year are as follows: “If markets move on what you don’t know today, but will know tomorrow then it follows that many factors such as a US interest rate rises should already be factored into the current price… it also begs the question what the new drivers for 2015 will be. We see ongoing declines in economic growth prompting central banks to fight deflation by resorting to inflationary pressures in H2.  If our outlook for gold in dollar terms is bullish, in emerging currencies it may be even more so as investors seek to insure or hedge against currency debasement. As such, we foresee good demand for the physical.”

He sees gold already demonstrating that it has turned a corner and sees investor flows returning strongly but reckons there are unlikely to be runaway prices beyond the $1450 level without either significant new product innovations or without the sort of black swan events in the economy that few would wish for, although the potential for these looks ever greater following the SNB’s decision of last week to drop the Swiss Franc peg against the Euro.

He is also fairly bullish on silver, looking for an average price of $18.56 over the year, encompassing a high of $21.75.  In percentage terms these are big rises from the prices prevailing at the beginning of the year.  This is commensurate with the general pattern of silver moving up faster than gold on the upside – and he also reckons that investors will take comfort from silver ETF holdings which have remained firm (unlike gold ETFs) coupled with reported retail sales of the physical – coins and bars -which have also remained robust.

He seems to be a little more sanguine in his views on platinum.  Despite many analysts seeing platinum in serious supply deficit this year, he is looking for a yearly average price at $1268 – somewhat below that of his gold forecast suggesting that at some stage during the year the platinum price will fall back below that of gold as it has now already done on Friday after struggling to stay above the gold price level for most of last week.  He does foresee a high price during the year of $1480 – thus higher than that he sees for gold.

Finally there is palladium – the precious metal probably most supported by analysts in recent months due to what are seen as continuing strong fundamentals.  Norman is looking for an average price over the year here of $876 with a 2015 high reaching $975 as against the price at time of writing of $755.  Palladium was last year’s best performer in the precious metals sector and Ross suggests it may have trouble matching last year’s 10.9% increase, but even so he feels the junior precious metal as having another positive year based on continuing attractive supply/demand fundamentals despite the backdrop of a relatively weak global economy. He also points to an assessment suggesting an ongoing supply deficit in the order of 1.4 million ounces which will keep the metal well bid. Of the four metals, palladium remains once again his favourite, although, on his predictions perhaps gold and silver will do even better!