Weekly metals report: Gold, silver, palladium and copper

May 23, 2017 01:07 PM

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GST rate to decide fate of gold trade/ET Bureau: The introduction of Goods & Services Tax (GST) in July opens up two distinct possibilities of how the gold trade turns in India, the world's second largest consumer. Experts said unorganized players and wholesalers could disappear outright from the market or a GST rate above 2% could nudge a section into the gray market.

On the consumption front, demand is expected to slow down initially but may pick up in September with the onset of the festival scene.

The World Gold Council has kept annual consumption estimate for 2017 to 650 tonnes, 3.77% less than 2016, on account of the impact of GST.

"Once GST is in place, the jewelry wholesalers will get eliminated. Many retail jewelers in rural areas and small towns currently make money on gold purity as well as on making charges. At present, customers are not aware of hallmarking to check gold purity. Thus, with little awareness, wholesalers act as key persons between retailer.

Today's Trivia Question: What South American country named itself silver?

Gold rises amid suggestion Trump may have obstructed justice/Bloomberg: The metal climbed for a fifth day, the longest run in a month, on reports that the president asked FBI Director James Comey to drop an investigation into a former National Security Adviser. The dollar has dropped and European stocks fell.

Before last week, gold had been falling since mid-April amid a stronger dollar and expectations for more U.S. interest-rate increases. Higher borrowing costs tend to curb the appeal of non-interest-bearing assets like gold.

Silver/Kitco: Silver continues to trade in the green, with prices heading for a fifth consecutive positive daily close, and according to one strategist, the metal may be able to score it.

"After a severe 12 percent correction over just four weeks, the commodity is enjoying a bounce that began on Wednesday. As we saw with crude oil, a pullback in the dollar is helping the commodity bounce from a deeply oversold condition," noted Matt Maley, equity strategist at Miller Tabak, in a post on CNBC Monday.

Silver futures have been moving higher since mid-last week after hitting multi-month lows with July silver last at 16.74 an ounce, up 0.83% on the day. The last time silver prices saw five consecutive positive daily closes was just after the unexpected Brexit vote in June. Meanwhile, the U.S. Dollar Index hit a 6-month low Tuesday, last trading at 98.26.

Platinum to see first market surplus in six years in 2017/Reuters: The platinum market is set to record its first surplus in six years in 2017, Johnson Matthey said on Monday, as a drop in demand from the vehicle industry, jewelers and investors outstrip a smaller fall in supply.

But the deficit in palladium is expected to widen to 792,000 ounces in 2017 from 163,000 ounces this year, the company said. The rising deficit in palladium helped cut its discount to platinum to less than $100 an ounce this month, it lowest in 15 years. The average for the past 20 years has been $555. Both metals are heavily used in catalytic converters but platinum, which is used more heavily in diesel catalysts, is seen as vulnerable to a drop in diesel market share.

London Copper Slips, Traders Cut Risk as China Growth Slows/Reuters: China's growth took a step back in April after a surprisingly strong start to the year, tapering off as authorities clamped down on debt risks in an effort to stave off a potentially damaging hit to the economy. “All of the slowdown in key macro data was from restructuring/reform and risk controls," said Argonaut Securities in a report.

"We think there is no chance of hard-landing in China as of now. That said, as there is a lack of drivers for new demand growth ahead commodity prices may fluctuate in a narrow range," it said. "Positive catalysts are stronger-than-expected external growth in Europe and emerging markets, and more supply side reform in China.

Pete's Corner
In my personal opinion, this small recap on the PGM's from Market Insight at Dillon Gage is very good. The largest use of palladium is in catalytic convertors for automobiles. Palladium is also used in dentistry, watch making, electrical contacts and surgical instruments. It can also be found in laptop computers and mobile phones. Palladium is rarer than gold or platinum and is one of the six elements in the so-called Platinum Group Metals (PGM's). The other products are Platinum, Rhodium, Ruthenium, Osmium and Iridium.

At the beginning of 2017, palladium was trading around $705. So far this year, investors have realized a gain in the price on the highs, most recently of approximately 15%. Who says the equities are the only market giving double digit returns?
This year Palladium hit an intraday high of $830.35. The last time this level was seen for Palladium was back in September of 2014. Open interest on Nymex has been increasing and institutional investor interest increased in the month of April.

According to the charts, the level of resistance for the long term investors is at the $ 819.00 to 820.00 level in spot. That area has been challenged this year a few times this year with no follow thru on any London fixing price. Currently, the spot price of Palladium is trading at $786.00.

The gold price run-up during 1979 and 1980/Ronan Manly: When the London Gold Pool collapsed in mid-March 1968, a two-tier gold market took its place, with the private market gold price breaking higher, while central banks continued to trade gold with the Federal Reserve Bank of New York (FRBNY) and U.S. Treasury at the official price of US$35 per ounce. However, in August 1971, Nixon closed this FRBNY/Treasury "Gold Window" by ending the convertibility of U.S. dollar liabilities into gold that had been an option for foreign central banks and foreign governments. This was the birth of the free-floating gold price. By the end of 1974, the U.S. dollar gold price had soared to $187 per troy ounce.

Following this, the next three years saw the gold price first trade down to near $100 during August 1976 before resuming its uptrend. Year-end gold prices over this period were in the $135 to $165 range.

In 1978, the price again broke to a record high and finished the year at $226 per ounce. See chart below. When the London Gold Pool collapsed in mid-March 1968, a two-tier gold market took its place, with the private market gold price breaking higher, while central banks continued to trade gold with the Federal Reserve Bank of New York (FRBNY) and U.S. Treasury at the official price of US$ 35 per ounce.

However, in August 1971, Nixon closed this FRBNY / Treasury "Gold Window" by ending the convertibility of U.S. dollar liabilities into gold that had been an option for foreign central banks and foreign governments. This was the birth of the free-floating gold price. By the end of 1974, the US dollar gold price had soared to $187 per troy ounce. Following this, the next three years saw the gold price first trade down to near $100 during August 1976 before resuming its uptrend. Year- end gold prices over this period were in the $135 - $165 range. In 1978, the price again broke to a record high and finished the year at $226 per ounce.

Pete: The reason this was placed in the Friday addition was to answer a question that came in from a reporter pertaining to the price of gold and could it be manipulated.

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About the Author

Peter Thomas is a senior vice president at the Zaner Precious Metal Division. As a licensed floor broker he was a filling broker in the silver pit back in the days when silver ran to $55 an ounce. He currently manages a global cash desk which handles Refiners, Recyclers, Mining Operations and Coin & Bullion companies.