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(Kitco News) – Gold prices have hit their highest level in more than seven years as the growing number of COVID-19 cases means increased worries about the economy, with some market participants moving into gold as a hedge in case equities tumble again, analysts said.

“The fundamentals this week seem to be a little more bullish,” Phil Flynn, senior market analyst with Price Futures Group, told Kitco News. “The market is finally starting to grasp the impact of all the economic stimulus and the fact that it’s going to continue for some time.”

In fact, others said, traders are starting to anticipate even more stimulus and monetary accommodation.

“And because there is some concern about the stock market being too high too quickly, we’re seeing a little bit more hedging back into gold,” Flynn added. “The technicals right now look like we’re in breakout mode.”

Around 8 a.m. EDT, Comex August gold was $9.60 higher to $1,791.60 an ounce and peaked at $1,796.10. Spot metal was $8.75 higher to $1,775.80 and traded up to $1,778.30, its most muscular level since October 2012. Meanwhile, the futures for the Dow Jones Industrial Average were more than 200 points lower in electronic trading ahead of the open on Wall Street.

“Gold prices continue to push higher, moving close to the $1,800/oz level as the yield on U.S. 10-year inflation-linked bonds dropped even further into negative territory,” said a research note from BMO Capital Markets. “We would reiterate that, of all the correlations used to analyze gold, that 10-year TIPS [Treasury Inflation-Protected Securities] has proven the most reliable through the cycle.”

Flynn noted that traders are focused on the $1,800-an-ounce psychological level, watching to see if the market can push through this on Wednesday.

“Based on the momentum, I wouldn’t be surprised to see us go even higher than that in the short term. We have a target in the short term of around $1,850,” he said.

George Gero, managing director with RBC Wealth Management, attributed gold’s strength to softer equities and worries that the rise in COVID-19 cases could impede the economy’s attempt to rebound. “All this means haven buyers,” he said.

Commerzbank pointed out that an average of 150,000 new coronavirus cases has been reported in the last seven days, the most ever, with the biggest increases occurring in the U.S. and Latin America. A number of U.S. states are reporting record daily rises, and public-health authorities are continuing to express concern. All of this generates additional worries about the U.S. economy.

“This could necessitate further stimulus measures by the U.S. government and U.S. Federal Reserve, which would continue the breath-taking currency debasement that is the result of expanding central-bank liquidity and national debt,” said Carsten Fritsch, analyst with Commerzbank. “This is evident not only in the exponential increase of the Fed’s balance sheet, but also in the unprecedented growth of the money supply. In the U.S., the M1 money supply soared by 33% year-on-year in May – more steeply than at any time since recording of the data began more than 60 years ago.

“It is no surprise then that investors are seeking refuge in a store of value such as gold, and that gold ETFs are therefore registering substantial inflows.”

BMO pointed out that year-to-date ETF inflows of 691 metric tons are “already higher than the annual inflows in any recent year.”

Author: Allen Sykora

Source: Kitco: Gold futures nearing psychological $1,800-an-ounce level

(Kitco News) – Gold remains range-bound but may be “coiling ahead of a breakout” to the upside, said TD Securities. The Comex August futures threatened the $1,750-an-ounce area overnight before pulling back, trading down $6 for the day to $1,729.60 as of 9:21 a.m. EDT. For some time now, analysts with numerous banks have been forecasting higher prices in the long term due to massive monetary accommodation and stimulus around the world. “Gold once again failed to break through $1750/oz resistance, but taking a step back, it is still clear that prices remain range-bound near multi-year highs,” TDS said. “We believe the market is coiling ahead of a breakout to higher prices — a historical pattern that we have observed several times over the course of the last few years. Ultimately, the key question for gold bugs is whether we are on the cusp of a regime shift in inflation, as the combination of world-war era fiscal and central bank stimulus, along with a change in the central-bank template (symmetric inflation target) and unwinding globalization could lead to a world where inflation is once again very relevant. In this context, a continued growth normalization should be welcomed by gold bugs as a reversal in safe-haven flows should be offset by investment demand, with real rates significantly suppressed.”

Author: Allen Sykora

Source: Kitco: TDS: gold ‘coiling ahead of a breakout to higher prices’

(Kitco News) – Money managers trimmed their net-bullish positioning in both gold and silver futures during the most recent reporting period for data compiled by the Commodity Futures Trading Commission.

In the case of gold, the net long is now at the lowest level in more than a year, Commerzbank reported.

During the week-long period to June 9 covered by the most recent CFTC data, Comex August gold fell by $12.10 to $1,721.90 an ounce, while July silver lost 46.6 cents to $17.794.

Net long or short positioning in CFTC data reflect the difference between the total number of bullish (long) and bearish (short) contracts. Traders monitor the data to gauge the general mood of speculators.

The most recent CFTC data cover a period when equities were on an uptrend, pointed out TD Securities. Stocks fell late last week and are lower again early Monday, but the CFTC report covers the time period through last Tuesday.

“Money managers further liquidated their gold length and added some shorts, as concerns emerged over the sustainability of the yellow metal’s bull market,” TDS said. “After all, global equity indices [were] surging at a record pace, leading to a reversal of safe-haven flows and dampening appetite for gold.”

The CFTC’s “disaggregated” report showed that money managers’ net-long position in gold to fell to 91,087 futures contracts as of June 9 from 100,355 the week before. The bulk of the decline was long liquidation, as the number of bullish positions fell by 7,248 lots. There was also some fresh selling, as reflected by an increase of 1,930 shorts.

Still, TDS said it still looks for money managers to eventually move back into gold.

“We reiterate that those selling gold in response to risk-on are improperly discounting the macro implications — the Fed will maintain its uber-easy policy for the foreseeable future and may even utilize more tools to support yields amid a massive supply of Treasuries,” TDS said. “In this context, we continue to expect that money managers will seek to shelter their capital from a prolonged period of negative real rates in gold.”

Commerzbank analyst Carsten Fritsch pointed out that the impact of selling in the futures market lately has outpaced the inflows into gold and silver exchange-traded funds. Metal has begun moving back into ETF vaults again after a brief hiatus, he said.

“Having said that, the ETF purchases in gold are being offset by selling on the part of speculative financial investors; their net-long position decreased in the week to 9 June to a good 91,000 contracts, their lowest level since May 2019,” Fritsch said. “What is more, this was the fifth reduction in positions in the last six weeks.

“The equivalent of 172 tons has thus been sold, which in fact slightly exceeds the inflows into gold ETFs during the same period. If we add the currently very weak demand in Asian into the mix, we can see why the gold price has repeatedly run out of steam at $1,745 of late.”

In silver, money managers’ net-long position slipped to 23,022 futures contracts from 26,718 futures contracts as of June 2. The decline was due to fresh selling, as total shorts rose by 4,211 lots, outpacing a 511 increase in gross longs.

Author: Allen Sykora

Source: Kitco: Money managers trim gold bullish positioning to lowest level since May 2019

(Kitco News) – Gold futures rose sharply Thursday as equities sank with markets focused on longer-term worries about the economy after a two-day meeting of the Federal Open Market Committee officials that ended Wednesday.

“We’re seeing a sector rotation out of risk assets like U.S. equities and into the safety of gold, silver and bonds,” said Phillip Streible, chief market strategist with Blue Line Futures.

Around 11:30 a.m. EDT, the Dow Jones Industrial Average was down by around 1,106 points as the market gave up some of the steep recovery that had occurred after this spring’s sell-off that was due to economic fallout from the COVID-19 pandemic.

Meanwhile, Comex August gold was $31.40 higher to $1,752.10 an ounce, and July silver was 36.9 cents higher at $18.165. Treasury yields – which move inversely to the price – were lower for the day.

“It’s the fact that yesterday the Fed painted the reality of the situation as a bleak picture right now,” said Bob Haberkorn, senior commodities broker with RJO Futures.

Policymakers indicated that that the economy was weak enough that they expect interest rates to remain at or near 0% through 2022 and reiterated the mantra that they will do whatever it takes to beef up the economy again. The Fed’s forecasts called for gross domestic product to decline by 6.5% in 2020 before bouncing 5% next year. Fed Chair Jerome Powell said “we’re not even thinking” about raising rates but instead focusing on underpinning a weak economy.

“There is a flight-to-safety trade going into gold and silver this morning,” Haberkorn said. “This whole equity run [sharply higher in recent weeks] has been kind of a head-scratcher at how fast and quick it got here.”

Streible suggested equity-market valuations after the recent rally “had become disproportionate to where reality was most likely at” in the economy itself.

A few-hundred point move either way in the Dow might not have prompted a huge move in gold, he continued. But when the decline for the day became 1,000 points, investors became more unsettled and saw the move as a “reality check.”

Streible also pointed out that while the Fed remained accommodative, there was no new policy action. “So maybe the market was looking for more,” he said.

Author: Allen Sykora

Source: Kitco: Gold prices surge on rotation into ‘safety of gold, silver and bonds’

(Kitco News) – Goldman Sachs looks for gold to hit $1,800 an ounce in the next year, with the potential for $2,000 if inflation should accelerate more than expected.

Goldman said it anticipates the metal will eventually make another leg higher in a scenario that resembles a pause followed by gains during the 2008-09 financial crisis.

Gold has been mostly range-bound for the last two months after initially falling this spring when investors were selling assets across the board to raise cash when stocks collapsed due to the COVID-19 pandemic. However, gold then bounced back when governments and central banks launched massive stimulus programs.

The metal eventually turned sideways when so-called risk assets bounced, but with gold holding up due to U.S. dollar weakness and low long-term real interest rates, Goldman said in a report Tuesday.

“The situation resembles the first half of 2009 when despite continued economic recovery and higher stock prices, gold and real rates remained range bounded as the Fed maintained ultra-easy monetary policy,” Goldman said. “Eventually gold broke out higher in Q3 2009 in line with the move lower in real rates as inflation expectations increased outpacing [a] rise in nominal rates. We believe that a similar dynamic can play out today with the repricing of inflation expectations being the catalyst for a move up in gold.”

Gold also may be underpinned as emerging-market economies reopen, Goldman continued. Analysts said the gold premium in China has already returned to pre-crisis levels, suggesting normalizing demand.

“All in all, we believe that gold should withstand the near-term cyclical rotation expected by our strategist and continue to expect it to reach $1,800/toz on a 12m [12-month] basis,” Goldman said.

Just before 9 a.m. EDT, spot gold was at $1,722.70 an ounce, up $8.10 for the day.

“While it is not our base case, we see the tail risk of above-target inflation as a potential driver for gold prices beyond $2,000,” Goldman said. “While the Fed maintains a dual inflation-output mandate, from 2009-11 they proved willing to tolerate above-target inflation in the short term in order to aid the labor market’s recovery. Such a cyclical dislocation between break-even inflation and nominal rates could further drive real rates down and gold prices up.”

Meanwhile, Goldman hiked its copper forecast, citing a pickup in demand from No. 1 consumer China that may well erase a previously expected supply surplus for 2020. As a result, Goldman now looks for copper prices to be at $6,000 per metric ton in three months, up from its prior forecast of $4,400. The metal is now seen at $6,500 in 12 months, up from the previous outlook of $6,000.

Aluminum likely will finish 2020 with a supply surplus, Goldman said. “However, we believe the worst has been priced in and sequential improvement in aluminum demand is set to continue…,” Goldman said, hiking its three- and six-month forecasts to $1,700 and $1,800, respectively, from $1,400 and $1,700 previously.

Author: Allen Sykora

Source: Kitco: Goldman Sachs sees $1,800 gold prices with potential for $2,000

(Kitco News) – Gold has bounced after nearing chart support and the combination of stimulus measures and inflation expectations “suggest investors will have reason to return” to the market, said TD Securities. The metal Wednesday traded to the lower end of its recent trading range, with spot metal briefly dipping below $1,700 an ounce, but gold nevertheless held support, TDS said. “We continue to expect a range-bound market in the near term as risk appetite continues to firm and as open interest and liquidity remain relatively low,” TDS said. “With that said, range-bound trading could dampen momentum signals, but the strong price action this morning amid a risk-off tone has lessened the risk as the trigger for CTA [Commodity Trading Adviser] selling moves further away, now sitting at $1,672/oz. Moving forward, still strong ETF [exchange-traded-fund] holdings along with the prospect of deeper negative real rates, amid improving inflation expectations and mass amounts of monetary and fiscal support, suggest investors will have reason to return to the yellow metal.” As of 9:23 a.m. EDT, spot gold was $14.30 higher for the day to $1,715.10 an ounce.

Author: Allen Sykora

Source: Kitco: TDS: gold prices hold support, investors ‘have reason to return’

(Kitco News) – Metals Focus has lowered its forecast for the supply/demand deficit in the palladium market for 2020 due to the COVID-19 pandemic and looks for the platinum market to be in a surplus.

The pandemic has curtailed demand as global economic activity suffers, the consultancy said in a report Wednesday. There also have been supply disruptions, with temporary mine shutdowns in key platinum-group-metals producer South Africa.

Metals Focus said the COVID-19 impact likely will be the greatest for palladium, which is used in automotive catalysts for gasoline-powered cars, which are popular in the No. 1 and 2 auto markets of China and the U.S. As recently as March, Metals Focus had forecast a physical deficit of 899,000 ounces, or 28 metric tons, in 2020 for the metal. However, the consultancy said it has now revised this to a deficit of 124,000 ounces, or 3.9 tons.

This would be the smallest deficit since the palladium market was last in surplus in 2011, according to Metals Focus data. The deficit was as much as 1.29 million ounces in 2016.

Meanwhile, the consultancy is now projecting a 2020 physical surplus of 247,000 ounces, or 7.7 tons, for platinum, roughly one-third lower than the March estimate.

These forecasts are based on the Metals Focus view that the COVID-19 crisis is brought under control in key markets in a timely manner and a stimulus-driven economic recovery occurs, the consultancy said. Nevertheless, “uncertainties of course still abound,” so there are “significant risks” to the forecast, analysts added.

“Regardless of the impact of COVID-19, we expect the status quo, of palladium being in a deficit and platinum in a surplus, to remain in place this year,” the consultancy said.

This continues the trend from a number of years now, in which platinum has been in surplus while palladium has been in a deficit, the consultancy said. Nevertheless, palladium’s deficit of 595,000 ounces in 2019 was narrower than in the previous three years, down from 980,000 ounces in 2018, Metals Focus said.

“The sharp year-on-year fall in palladium’s deficit in 2019 might at first glance seem to contradict clear signs of the physical-market tightness felt during the year,” Metals Focus said. “However, last year’s shortage only added to the declines in inventories recorded over most of the previous decade.”

Since 2010, above-ground stocks of palladium have declined by 5.3 million ounces (165 tons), or about 30%, analysts said.

For 2020, the consultancy sees palladium demand declining to 9.68 million ounces from 10.88 million the year before. The bulk of the demand is for auto catalysts, and this is expected to decline to 7.89 million ounces from an all-time high of 8.88 million in 2019. Supply is seen falling to 9.55 million ounces this year from 10.29 million.

Palladium prices are seen averaging $2,275 an ounce this year, compared to $1,537 last year.

In the case of platinum, Metals Focus sees total demand falling to 6.95 million ounces from 7.46 million in 2019, with auto-catalyst demand easing to 2.48 million ounces from 2.89 million. Supply is forecast to decline to 7.2 million ounces from 8.26 million. The consultancy forecast an average platinum price of $765 an ounce, down from $863 in 2019.

Palladium prices rose in 2019 and then accelerated to the upside in early 2020 prior to the pandemic, peaking above $2,880 in February, Metals Focus pointed out. Last year’s strength was due to the market’s supply/demand fundamentals as investment demand was actually muted, with many professional investors staying away because of low liquidity and thinking they had “missed the boat,” Metals Focus said.

“Later this year, we expect palladium prices to rally in spite of the current COVID-19 related challenges,” Metals Focus said. “As physical demand improves, we think the price is likely to return to the mid-$2,000s in the second half of 2020 and we would not be surprised if the February peak were approached before year-end.

“We are also cautiously optimistic for platinum, in spite of its fundamentals. We believe that the metal will ride on gold’s coat-tails, against a macroeconomic backdrop that becomes increasingly positive for the yellow metal, with a possible peak of $950 achieved in the final quarter.”

Author: Allen Sykora

Source: Kitco: Metals Focus trims forecast for 2020 palladium supply deficit due to COVID-19

(Kitco News) – Both supply and demand for platinum group metals will suffer “significant damage” during 2020 as a result of the global COVID-19 pandemic, materials maker Johnson Matthey said in a report Monday.

However, because of the uncertainties regarding mine output and continual downgrades to production forecasts for the auto industry, Johnson Matthey opted to not list supply/demand balances or price forecasts for 2020, as it normally does.

Johnson Matthey did report that all of the markets for platinum group metals were undersupplied in 2019 – platinum by 265,000 ounces, palladium by 950,000 ounces and rhodium by 25,000 ounces. The palladium deficit widened, while platinum moved into a deficit as investment demand added over 1 million ounces to exchange-traded-fund holdings, more than offsetting a 5% decline in demand from the auto sector, the report said.

The primary use for platinum, palladium and rhodium is for automotive catalysts. Car sales are expected to suffer this year as a result of the pandemic. However, there have also been temporary mine shutdowns, including South Africa, the world’s largest platinum producer.

“The COVID-19 pandemic will inflict significant damage on PGM supply and demand in 2020,” Johnson Matthey said. “Both primary and secondary supplies will contract, due to temporary shutdowns at many mining operations, and disruption to the collection and refining of PGM-containing scrap.

“Auto-catalyst PGM demand will fall steeply, reflecting short-term closures at most major automotive plants and a sharp contraction in consumer demand for new vehicles. The jewelry market is also expected to be badly hit, although weak platinum prices in March stimulated inventory building by the Chinese distribution chain.”

But while supply and demand will be hurt, it is also difficult to quantify the impacts at the moment amid the economic uncertainty brought about by government actions to combat COVID-19, Johnson Matthey said.

“Given these extreme levels of uncertainty, we do not believe that it is possible to make a meaningful prediction of market balance this year,” Johnson Matthey said.

By late March, analysts said there appeared to be regional divergences in the impact.

“In particular, demand from Asia began to return, at a time when primary miners, secondary refiners and inventory holders located in South Africa, Europe and North America were reducing activity levels and encountering logistical difficulties in making shipments,” Johnson Matthey said.

Transportation of refined PGMs became yet another issue for the market to deal with, analysts pointed out.

“During March and April 2020, an abrupt decline in the number of flights available, and hence in air freight capacity, caused serious disruption to metal shipments, both from South Africa to customers in the northern hemisphere, and also from trading hubs such as London and Zurich into Asia,” Johnson Matthey said.

“During March and early April 2020, this severe disruption to international PGM trade resulted in a mismatch between the location of demand, primarily from Asian economies recovering from COVID-19 disruption, and of refined PGM production and stocks, mainly in South Africa, North America and Europe. This has probably helped support prices for palladium and rhodium, despite a steep fall in PGM demand in Western economies.”

In the case of platinum, analysts said there were signs of a discrepancy between the form of metal available and the requirements of consumers, with ample sponge but limited ingot.

PGM demand from automotive and industrial consumers is expected to fall steeply this year, Johnson Matthey said.

“Automotive consumption will be especially badly hit, with temporary plant closures hitting production during the first half of the year and consumers’ appetite for big-ticket purchases likely to remain depressed for the remainder of the year,” the firm said.

During the first quarter, world light-duty vehicle production and sales are estimated to have fallen by around 25% and 20%, respectively, compared to the same period of 2019, the company said. Most of this was the direct result of COVID-19, with sales and production in No. 1 car consumer China contracting by more than 80% in February.

Significant disruptions in Western auto markets did not occur until late in the first quarter, Johnson Matthey said. In fact, the company said there was an increase in North American vehicle sales and output during January and February as the market recovered from last year’s seven-week strike at General Motors, before those these gains were reversed in March.

“Demand for physical investment bars in Japan set an all-time record in March 2020, with private investors estimated to have bought around 200,000 ounces of platinum in a single month,” the report said. “This activity was consistent with past investor behavior in the Japanese market; steep declines in price tend to stimulate buying, especially when important psychological price levels are breached.”

However, second-quarter investment is likely to be weaker, due to a higher price in yen terms and the government closing retail counters during the pandemic, Johnson Matthey said.

Meanwhile, lost production in the mining sector is likely to be greatest for platinum and rhodium, with palladium least affected, Johnson Matthey said. Output in key producer South Africa has not only been affected by the mine shutdowns but a temporary closure of the Anglo American Platinum converter plant due to an explosion and technical issues. Meanwhile, there have been no reported output interruptions by Russia’s Norilsk Nickel, which is a key palladium producer, Johnson Matthey said.

“While it is difficult to make a precise assessment of production losses at this stage, we expect mine PGM output in South Africa to fall by at least 20% in 2020; the rate of decline in palladium output will be slightly lower than for platinum, while rhodium will be the most affected of the three auto-catalyst PGM [markets],” Johnson Matthey said. “Even once mines are permitted to operate at normal levels, the ramp-up will take some time and – particularly in labor-intensive settings – volumes will be constrained by safety measures implemented to reduce the risk of virus transmission between workers.”

Platinum Investment Demand Jumps in 2019

Johnson Matthey Platinum Group Metal February 2020 report. Released May 2020. Platinum demand amounts in ‘000 oz. in Charting supply data from summary. Source: Johnson Matthey.

Platinum Supply Holds Steady in 2019

Johnson Matthey Platinum Group Metal February 2020 report. Released May 2020. Platinum supply amounts in ‘000 oz. in Charting supply data from summary. Source: Johnson Matthey.

Author: Allen Sykora

Source: Kitco: Johnson Matthey: COVID-19 hitting both supply, demand for PGMs

(Kitco News) – The global coronavirus pandemic will hurt both silver supply and fabrication demand in 2020, but the ultimate impact on the market could be offsetting, said CPM Group in its Silver Yearbook 2020 released Tuesday.

On the supply side, government measures to combat the pandemic have resulted in mine closures in some key mining jurisdictions, while some companies have also proactively shuttered their operations, CPM Group said.

“At the very least, based on the current duration of mine closures and the daily output in 2019, the mine closures in South Africa, Peru and Mexico should result in lost output of at least 21.1 million ounces of silver,” CPM Group said.

Further, this could end up being a “conservative” estimate with actual supply losses potentially exceeding this, since current government-mandated closures could be extended and there is the possibility of new ones, the consultancy continued. And on top of this, there will be interruptions to scrap or recycled supply as well, as some refineries are being curtailed or shut down.

“While such supply disruptions by themselves would have been extremely positive for metals prices in another environment, the same factors that are causing supply disruptions are also resulting in a reduction in demand for silver for use in fabricated products,” CPM Group said. “There is little demand from both end consumers and from factories producing various products as they are shuttered in an effort to contain the virus.

“The net impact of these disruptions is near zero at this time.”

CPM Group suggested supply and demand interruptions may clear up around the same time. Nevertheless, a slow recovery by consumers – who may hold back on non-essential spending – may have a negative impact on prices, the consultancy said. However, governments and central banks are injecting liquidity into the financial markets to offset the negative economic fallout, which is supportive for metals in general.

“A combination of immense market liquidity coupled with a more clear sign that the global economy is on the mend from what was lost during the pandemic should weigh more heavily on real rates and help lift silver prices, when these trends both come together,” CPM Group said.

Central-bank monetary accommodation is unlikely to be removed quickly following an economic recovery, the consultancy continued. CPM Group said it does not expect problematic inflation, but said the moves will help prevent deflation.

“With nominal rates near zero and in some cases below zero, the threshold for real rates to dip into negative territory is fairly low,” CPM Group said. “This sets up a price supportive environment for silver.”

Silver’s underperformance provides ‘window of opportunity’

Nearby Comex silver prices finished 2019 at $17.92 an ounce, a year-on-year gain of 15%, although less than the 19% rise in the price of gold. The annual average price rose to $16.23 from $15.71 in 2018, CPM Group said.

Silver prices were held back by low levels of net investment demand for physical silver and a decline in fabrication demand during 2019, CPM group said.

The gold-silver ratio ended 2019 at 83.9, then climbed to 125.5 by March of this year. This means it took more silver ounces to buy an ounce of gold, meaning an underperformance by silver prices against gold.

“It is not unusual for silver to lag gold’s performance in the early stages of a revival in the prices of these metals,” CPM Group said. “Silver has often initially lagged and later outperformed gold in cyclical upward moves in precious metals prices. While silver is not expected to put in this sort of a strong performance in the near future, it should be expected in the medium term.

“This underperformance in silver prices provides medium- to long-term silver market investors a window of opportunity to capture the forecasted upside in prices.”

Besides supply/demand fundamentals, investors focus on the macroeconomic and political backdrop, which also impacts gold.

“The disconnect in the level of investor demand for the two metals last year despite the same factors influencing investor demand leaves a gap to be filled, which is tilted in favor of silver price appreciation given its recent past underperformance to gold,” CPM Group said.

Silver supply, fabrication demand expected to fall

CPM Group reported that total silver supply rose to 962.6 million ounces in 2019 from 954.9 million the year before. Global mine supply rose to 760.1 million ounces, although the output during the last two years was the lowest since 751.8 million ounces in 2013. Secondary supply, or scrap supply, rose to 202.5 million ounces in 2019 from 201.5 million in 2018.

For 2020, CPM Group looks for total silver supply to fall to 938.6 million ounces.

“If this level of total supply is realized, it would be the lowest level of silver supply since 2008, when it stood at 913.1 million ounces,” the consultancy said. “The weakness in total supply during 2020 is expected to be driven entirely by a decline in mine production, with secondary or scrap supply rising slightly during the year.”

Meanwhile, fabrication demand in 2019 was held back by slower economic growth, dipping 0.2% to 926.4 million ounces, CPM Group said. This was the first decline after six straight years of growth.

The consultancy looks for fabrication demand to fall to 859.1 million ounces in 2020, primarily driven by disruptions to supply chains and lower demand due to economic fallout from the COVID-19 pandemic. If fabrication demand does fall as much as forecast, it would be the weakest since 853 million ounces in 2014, CPM Group said. There is some uncertainty in the forecast, however, as it depends on how various scenarios play out with the pandemic.

“Consumers and businesses are likely to curb their expenditures for several months following the lifting for lockdowns,” CPM Group said. “There also will remain a threat of a second wave of infections from the virus following the lifting for the lockdowns, until there is a proven cure.”

CPM Group put 2019 investment demand at 36.2 million ounces, up from 27 million in 2018. Excluding 2018, the demand last year was the lowest since 33.6 million ounces in 2006, CPM Group said.

Investor interest in silver picked up during the first quarter, however, and the consultancy projected net silver investment of 78.9 million ounces in 2020. Still, CPM Group said this would be lower than during previous silver bull markets, noting that 2016 investment demand was 131.1 million ounces.

“Investors are expected to buy silver on price declines, in anticipation of higher prices in the medium to long term,” CPM Group said. “But they are unlikely to chase silver prices higher at this time, with declines in fabrication demand making additional metal readily available to investors.”

Author: Allen Sykora

Source: Kitco: CPM Group: pandemic to dent silver supply and demand in 2020

(Kitco News) – Money managers decreased their net-bullish posture in gold futures during the most recent reporting week for data compiled compiled by the Commodity Futures Trading Commission (CFTC), but this low positioning also means potential buying should the metal rally, analysts said.

During the week to April 21 covered by the last CFTC report, Comex June gold fell $81.10 to $1,687.80 an ounce, while May silver lost $1.254 to $14.876.

Net long or short positioning in CFTC data reflect the difference between the total number of bullish (long) and bearish (short) contracts. Traders monitor the data to gauge the general mood of speculators, although excessively high or low numbers are viewed by many as signs of overbought or oversold markets that may be ripe for price corrections.

The CFTC’s “disaggregated” report showed that money managers ’net-long position in gold as of April 21 fell to 146,271 futures contracts from 155,244 the week before.

“Speculative interest is thus at its lowest level since June 2019, which likewise points to rising prices,” said Commerzbank analyst Carsten Fritsch. “After all, it is easy to imagine that speculators will still decide to jump on the bandwagon.”

Numerous analysts have called for gold prices to rise after massive fiscal stimulus and monetary accommodation around the world to combat the economic fallout from the COVID-19 pandemic. In the U.S. alone, 26.45 million million people have filed initial jobless claims in a five-week period.

The bulk of the decline was long liquidation, as the number of gross bullish positions fell by 6,920 lots. There was also some fresh selling, as gross shorts rose by 2,053.

The net long finally moved out of the narrow range of 154,079 to 157,409 lots that it had been contained within since March 17. Previously, it had been as high as 238,546 back on Feb. 18.

“Speculators decreased their gold length, as prices reached the top of the range and as concerns over a renewed round of financial deleveraging grew, catalyzed by the carnage in crude markets,” said a research note from TD Securities.

However, analysts said the positioning is now “far from stretched,” which suggests any further “dash for cash” is less of a risk to the precious metal. Gold previously tumbled in mid-March when the stock market was in a free fall as investors were selling a wide range of assets, including profitable gold positions, in order to raise liquidity.

“With that said, the unprecedented scale of QE [quantitative easing], along with clean positioning, and steady ETF [exchange-traded-fund] flows all suggest that the outlook for gold prices remains particularly strong…,” TDS said.

Meanwhile, money managers trimmed their their stance in silver to a net long of 13,791 futures contracts from 15,448 the week before. Total longs fell by 774 lots, while gross shorts increased by 883.

Author: Allen Sykora

Source: Kitco: Money managers trim bullish positioning in gold futures

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