News Archive Precious Metal Markets

Rising investor demand and a recovery in industrial demand starting late 2009 were key factors in a strong recovery for silver prices last year, and will continue to drive prices up in 2010, according to World Silver Survey 2010 released Thursday by the Silver Institute.

Compiled by London-based metals research company GFMS Ltd, the annual report said silver's price will add to its gains this year as Europe struggles with a sovereign debt crisis that threatens to undermine a fragile global economy.

Price gains were also driven by fabrication demand that has been increasing as 2010 progresses, Philip Klapwijk, executive chairman of GFMS, told Reuters in an interview.

"We started to see demand come back quite strongly at the tail end of 2009 and that's been built on this year," he said.

At a briefing later on Thursday, Klapwijk told investors that GFMS looks for an upside breakout in the white metal's price, "with a fair chance that 2008's London high at $20,92 (per ounce) will be exceeded in 2010."

Nearer term, the executive said GFMS's forecast calls for a range between $16,40 to $19.50 through July, noting that the range so far in 2010 has spanned $15,14 to $19,64, basis the London fix. He said the London fix price average for 2010 today is $17,41, up 36 percent from the comparable 2009 period.

GFMS expects silver prices to remain volatile in 2010 as they broadly shadow gold prices.

While the global recession caused fabrication demand to fall sharply in the early months of 2009, a rebound began in the latter half of the year, which has continued into 2010.

"We're seeing a fair increase in demand," he said. But he added that manufacturers and other industrial users are cautious about the strength of global economic recovery and therefore order silver as they need it, with short lead times.

"Demand has picked up very strongly and is healthy. But it would be wrong to say that it is going gangbusters. There's a certain lack of conviction about the recovery," he said.

The GFMS report expects flat supply in 2010 and solid gains in fabrication demand, which should buoy prices this year.

"If we look at supply, we expect some increase this year from mine production to another record high level. Although, growth will not be that strong, but there will be some growth. We are expecting against that, though, a fall in silver recycling, due to continued decline in photographic demand," said Klapwijk.

The specialist at the analysis company GFMS published their latest report last week. They, like Anglo, also feel that demand this year will increase. However for the year 2009 they have reported a considerable excess for Platinum. It was mainly sinking demand for automobiles that was responsible for this and purchases by the jewellery industry could only put a break to this but could not adequately neutralise the effect. Both together make up for 75 per cent of global demand. In 2009 the jewellery market demand was up by 38 per cent to 2.26 million ounces whereas demand from the automobile industry fell 28 per cent to 2.6 million ounces. Supplies from recycling were down 36 per cent to 1.22 million ounces; not really very surprising when one considers the relatively much lower prices as compared to early 2008.

According to GFMS the considerably expanded excess was equalised again by investors. And platinum could depend on them in these difficult times: besides the identifiable physical purchases (a net 216,000 ounces, among others in ETFs) 1 million ounces were bought by investors in the form of weight-account metal and long positions on the futures exchanges. Only after considering these could the demand-supply balance sheet of the metal be balanced-out. The 80 page report is available via the website www.gfms.co.uk.

London based consultant GFMS published on April 14th their annual gold market study. The “Gold Survey 2010” analysts at GFMS forecast that gold will trade between $ 1,050 an ounce and $ 1,150 an ounce in the coming months. Medium term, however, the metal could record a fresh historic high and touch $ 1,300 an ounce. Latest then would the end be near to the now almost 10 year long bull-run.

Main cause for this scepticism at GFMS is the reducing jewellery demand – in the past always the backbone of the fundamental picture – which has more than halved in recent years. At the same time they do not expect investment demand to stay at current high levels.

The recent GFMS study shows that demand for investment gold including bars and coins doubled last year to 1,901 tonnes and for the first time in thirty years overtook jewellery demand.

As far as production is concerned, the high gold price has left its mark on the metal too: with margins much higher, the mines produced 2,572 tonnes (7 per cent more) and GFMS expects production to go up further this year. However, the outturn still remains below the 2001 high of 2,646 tonnes. Scrap-gold supplies jumped dramatically in 2009, not least, due to increased metal prices. At 1,674 tonnes (plus 27 per cent), this supply source made up almost 2/3rd of new production.

On the central banks front, according to GFMS a mere 41 tonnes of gold were sold by these institutes last year; a fraction of the multi-year average.

On 22nd December the US regulatory agency SEC approved the April 2009 application for introduction of the first – initially much contemplated but of late no longer controversial – US-based platinum-metals Exchange Traded Funds (ETFs).

An earlier effort at introducing such products in 2007, in wake of strong resistance from producers, processors and industrial end-users, fell through. Back then this group of market participants pointed to the strategic industrial importance of platinum-metals and to the possible squeeze on availability of metal that the introduction of ETFs on the New York exchange could trigger.

Such considerations did not play a role as the markets, relative to situation in 2007 and early 2008, had meanwhile normalised. Consequently the first listing on 8th January 2010 went through without a hitch and in the first few days around 120,000 ounces (ca. 4 tonnes) each of platinum and palladium were sold.

All ETFs combined, almost 780,000 ounces of platinum and almost 1.3 million ounces of palladium are now bound to various such products traded in Europe and newly also in the USA. These totals represent 13 and 20 per cent respectively of global annual production.

From the time of SEC’s approval, platinum-metals prices profited considerably and in the three weeks to 12th January platinum had gained almost $250, trading up to $1,612 an ounce, while palladium rose from $350 to $438 an ounce.

Spot gold surged on December 3rd 2009 to a record high above $1,226 an ounce.

Below are the key dates in gold's trading history since the early 1970s:

August 15th 1971 - President Richard Nixon terminates all official gold sales or purchases and takes the dollar off the gold standard, which had been in place with minor modifications since the Bretton Woods Agreement was signed in 1944. It had fixed the conversion rate for one troy ounce of gold to $35.

May 08th 1972 – The United States changes the official gold price to $38 per ounce.

February 12th 1973 - U.S. devalues the dollar again to $42.22 per ounce.

March 19th 1973 - Most major Western countries change to a floating exchange rate system.

January 21st 1980 - Gold reaches a record high at $850 per ounce. High inflation because of strong oil prices, the Soviet occupation of Afghanistan and the impact of the US-Iranian- hostage crises, prompt investors to move into the metal.

July 20th 1999 - Gold has fallen to a low of $252.80 per ounce and thus the lowest price in 20 years. There are worries about central banks reducing their official reserves and mining companies selling gold in forward markets to protect themselves against prices falling even further.

September 26th 1999 - Gold climbs back a two-year high at $340 after 15 European central banks agree to coordinate and limit their gold sales in their first Central Bank Gold Agreement (CBGA). While speculators as well as long-term investors again start to focus on the yellow metal as a result of the more positive market sentiment, some gold mining companies totter on the brink of bankruptcy due to their large hedge books.

February 2003 - Gold reaches a 4-1/2 year high on safe-haven buying as a result of the war looming between US-led coalition forces and Iraq.

December 2003 - Gold breaks above $400, reaching levels last traded in 1988. Investors increasingly buy gold as risk insurance for portfolios.

November 2005 - Spot gold breaches $500 for the first time since December 1987.

April 11th 2006 - Gold prices surpass $600, the highest level since December 1980, with funds and investors pouring money into commodities on a weak dollar, on firm oil prices and on geopolitical worries. Gold prices then peak at $730 an ounce on May 12th.

June 14th 2006 - Gold falls 26 percent to $543, after investors and speculators sell out of commodity positions.

November 7th 2007 - The negative trend does not last long: Gold rises to $845.40 an ounce, almost reaching the all time high of 1980.

January 2nd 2008 - The New Year gets off to a tremendous start: spot gold climbs to a new all time high above $850 an ounce.

March 13th 2008 - After serious power cuts for South Africa’s mining industry and record inflows in gold-backed exchange-traded funds (ETFs), gold climbs over $1,000. On March 17th gold peaks at a high of $1,033.80 an ounce.

July-September 2008 - Gold experiences massive losses on the back of profit taking and falls to the level of $735 an ounce just before the Lehman collapse.

September 17th - Spot gold rises by nearly $90 an ounce, a record one-day gain, as investors seek safety amid turmoil on the equity markets. The situation changes when panic liquidation of gold investments sets in in order to raise cash; the yellow metal slumps quickly back to $680.

January-March 2009 - Gold creeps back above the $1,000-benchmark, as physical investors buy record amounts of physical gold as a safe haven whilst major economies face a recession and the dollar falls considerably.

November 2009 - After a longer period of directionless trading around the benchmark of $1,000, gold finally breaks out on the upside. It reaches $1,100 an ounce in early November and the new all-time high of $1.226 on December 3rd 2009.

This summary was conducted using publications of the World Gold Council, The Gold Institute, ThomsonReuters and own Heraeus reports. While great care has been taken in collecting the data, inaccuracies or omissions may occur and we apologize for any of those.

In a surprising move the Reserve Bank of India (RBI) has purchased 200 tonnes of gold from the International Monetary Fund (IMF) under the latters’s limited gold sales programme. The Reserve Bank paid $6.7 billion for the metal which it bought already last month.

“The purchase was done as part of the foreign exchange reserves management operations. It was an official sector off-market transaction, executed over a two-week period starting from October 19 at market-based prices,” the central bank said in a press statement on November 3rd. With the latest purchase, the RBI is now holding nearly 558 tonnes of gold and it has become the 11th largest official gold holder in the world. The move by the RBI somewhat confirms the increasing trend of central banks moving parts of their reserves away from the dollar into other assets.

After extended discussions the IMF Executive Board on September 18 decided to offload 403.3 tonnes of gold. Before the sale the Fund held 3,217 tonnes of gold valued at $98.8 billion.

The European central banks, as expected, have renewed their gold sales agreement. The central banks jointly announced that the agreement – the third of its kind – will go into effect 27th September 2009 and will (as the previous ones) be valid for a period of five years. According to the terms of the renewed agreement annual sales of gold by all member central banks is not to exceed 400 tonnes; in the previous agreement the quota was capped at 500 tonnes per annum, however this volume was in the last year by-far not achieved. Over the total period of the agreement a maximum of 2,000 tonnes can be sold. It is interesting to note that the central banks have mentioned any limitation for the use of derivative financial products. So far this aspect was part of previous agreements. We will have to wait and see if this could mean that, for example, sales using options would be considered by the central banks. Forward sales and swaps (as alternative to loans) have previously not been considered as derivate products anyway by some central banks and some of them have used these financial products in the past.

The central banks confirm in their declaration that gold remains an important element in their currency reserves. They further emphasised that the intended 403 tonnes of gold sales by the IMF are fully in tune with the new agreement and as such do not put any additional pressure on the market. As announced, the IMF intends to use the sales proceed to finance loans to emerging markets. The European Central Bank (ECB), all the sixteen central banks in the Euro-system, including Deutsche Bundesbank and the central banks of Sweden and Switzerland are signatories to the new agreement. The Bank of England was a signatory only to the first gold sales agreement of 1999. According to media reports the Bundesbank has so far not made a decision on possible gold sales under the new agreement. The Bundesbank currently holds about 3,400 tonnes of gold reserves; second only to the US Federal Reserve Bank, which has 8,000 tonnes in its vaults. The Swiss National Bank announced last Friday that it does not plan any gold sales in the foreseeable future.

End July, in the (possibly second last) report on the currently running gold agreement, the World Gold Council appropriately noted that within the framework of the existing gold sales agreement central banks had till 24th July 2009 sold a total of 140 tonnes of gold in the current year. WGC went on to report that the French central bank, with 79 tonnes, had the lions share in the sales, followed by the ECB with 35.5 tonnes. The Netherlands sold 9 , Sweden 9.6 tonnes and other nations (not individually mentioned) together a further 7 tonnes of gold.

The Chinese government agency State Administration of Foreign Exchange (SAFE) announced today that they had been buying gold in the local market since 2003 and since then had added 450 tonnes to their reserves which now stand at 1,054 tonnes. This event itself is an important aspect as to how China sees the role of gold. In the past years Chinese economists and analysts as well as international lobby-groups have been repeatedly calling for diversification of China’s fast-increasing foreign-exchange reserves into gold and thereby becoming less dependent on the performance of the US-dollar.

If one ignores the gold reserves of 3,217 tonnes of the supra-national organisation IMF, China now has the world’s fifth largest gold reserves. Despite the substantial increase of 450 tonnes in the past few years, these reserves represent a mere 1.5 per cent of the total foreign-exchange reserves of the nation. In comparison, the USA holds 79 per cent of its FX-reserves in gold; Germany, France and Italy all around 70 per cent. Market observers as well as representatives of the IMF and ECB in their initial comments did not appear surprised by the Chinese reserve-reshuffling and some even surmised that the Asian country could in future add further to its stocks. Some market participants pointed out that China could very well choose to circumvent the open-market and directly buy the 403 tonnes of gold that the IMF is considering selling.

In South Africa this week an extra-ordinary era came to an end: the meanwhile in London registered mining giant Anglo American announced that it would be selling its remaining 11.3 per cent share in AngloGold to a US investment fund.

Established in 1917 by the legendary Ernest Oppenheimer the Anglo had over the years become a broad-based multinational corporation before realigning itself back to its core mining business. And now has no interest left in its roots: the gold market. Anglo American actually started by producing gold in the East-Rand area. Later the company concentrated on mines in the Free State and Val Reefs, and success here made it the largest gold producer in the world after the Second World War. In 1998 Anglo America had already initiated its farewell from gold when activities of its gold subsidiary, known as AngloGold, were spun off. In 2004 AngloGold merged with Ashanti Goldfields Corporation to become AngloGold Ashanti, at that time with Anglo American just about holding a controlling interest of 51 per cent in the gold producer. This week Anglo American’s remaining shares in what is now the third largest gold producer were sold for around $ 1.28 billion to the New York based investment company John Paulson. Paulson, who also owns over 4 per cent of gold producer Kinross, is now the second largest shareholder in AngloGold.

In 2008 China outperformed South Africa for the second time in a row as the world’s largest gold producer. According to the “Chinese Gold Association” (CGA), who recently published their annual report, despite numerous natural catastrophes and the international financial crisis production last year increased by over 4 per cent to 282 tonnes.

2007 the Asian country produced 270.49 tonnes and for the first time took the lead from South Africa. Till then and unchallenged since 1905, South Africans had held first position as the largest gold producer.

One reason for the presumably permanent change at the top was the massive domestic and foreign investment that has gone into Chinese gold mining. This has pushed up production by about 70 per cent in the past few years. In South Africa on the other hand output has continually dropped from its 1970 peak of ca. 1,000 tonnes to now about a quarter of this. Responsible for this, other than the ore becoming lower in grade, is also the fact that access to ore-bodies has become more difficult over time and a challenge to technology as miners have to dig deeper and deeper to get to it. Also no new bigger deposits have been found in South Africa for many decades.

The increase in gold price this week by about $ 80 to $ 880 an ounce and a simultaneous weakening of the euro against US-dollar has moved the price of gold in the euro terms to a new all-time high. At its peak one ounce of gold cost € 688.30 (€ 22.13 per gram) and thereby just slightly above its previous high of 10th October 2008.
The reason for gold going up has mainly been the continual private and institutional investor interest; they have been primarily looking for physical metal, be it in the form of Exchange Traded Funds (ETFs) or investment bars. With at least a partial re-distribution of their assets the investors are reacting to the ever-growing uncertainty about the financial markets which this week, after Rating downgrades of some European nations and news about fresh losses at a number of European and American banks, has been further fueled.

The Bombay Bullion Association (BBA) announced on New Years Day that Indian gold imports in the past year had collapsed by 47 per cent to a mere 402 tonnes. In 2007 the imports were 759 tonnes. The BBA said that the massive increase in price of gold in local currency terms – Indian Rupee – (a plus of 29.2 per cent during the course of the year) and missing business in November and December due to the attacks in Bombay were mainly responsible for the collapse.

Historically India has been considered the most important gold market in the world. In 2007 it accounted for almost 20 per cent of global demand. Given the hardly changed global supply situation, India’s share in the market must have also almost halved last year.

The price of rhodium on its way down broke through the sonic barrier: though it still remains the most expensive precious metal, its price for the first time since 2004 is back in three digits. As recent as June it was quoted at $ 10,300 an ounce; fear of production stoppages as a consequence of the power crisis in South Africa was the main contributor for the booming price. Since then the metal has lost 92 per cent in value. There are various reasons for the collapse. For one the physical demand from the automobile industry as a result of the global financial and economic crisis has dramatically dried up; this sector absorbs 90 per cent of the annually newly mined 25 tonnes of rhodium. Additionally in the past few months long positions were increasingly liquidated and put further pressure on the price. Here it was not just the speculative positions of the Hedge Funds that got sold off but also – keeping in mind the present demand – the excesses in the strategic reserves of industrial users.

The extreme fall in platinum metal prices is now forcing more and more mining companies to revert to cost-reduction and to shelving new projects. Pan American Palladium announced that their mine in Canada was being put under care-and-maintenance till further notice and they would be letting go the effected 300 workers.

In view of the financial markets crisis private and institutional interest in physical precious metals continues to stay robust. A consequence has been that delivery periods for bars, which had eased in the interim, have again become stretched. While casted bars (from 250 grams up to 1 kilo) have relatively short delivery periods, new orders for stamped bars mean a wait into the New Year.
In view of the already round-the-clock production an easing of the situation is not be expected in the short-term. Long delivery dates for investment bars should not lead one to believe that there is general shortage of gold. There is sufficient raw material available, however it is in the wrong form (namely granules or 12.5 kg and 33 kg standard bars). The production capacity for investment bars is turning out to be a hurdle for after 25 years of lack of interest, the manufactures cannot keep up with the sudden surging demand (the same is true for coin manufacturers).

The four major precious metals have again lost value dramatically in the past few days and have been trading at times around long-time lows. Gold, still viewed by many long-term oriented investors as a safe-haven, managed to cut a relatively better picture, as already seen in the previous weeks, than the other majors. Nevertheless, at one stage it had dropped down to $ 681 an ounce – its lowest level since September 2007. Silver at times spiralled down to $ 8.42 an ounce to reach a low last seen in September 2005.

More severely effected than gold and silver were the two major platinum metals namely platinum and palladium. For a short period in the last October week platinum changed hands at a mere $ 732 an ounce and palladium at $ 160 an ounce. In both cases these were lows last seen in 2003. Palladium in this year was very briefly quoted at $ 140 an ounce; before this we have to go back to 1997 to find such low prices.

Since the March 2008 all-time high recorded by gold the metal has lost almost 34 per cent in value, silver 60.5 per cent, platinum 66.5 per cent and palladium 72.5 per cent.

The increasing fear of how the global economy is going to cope with its problems in the future has put severe pressure on precious metal prices.

The primarily industrial metals, namely silver, platinum, palladium and rhodium have taken the brunt of the fall. Silver, at $ 9.15 an ounce, was down to its lowest since March 2006; platinum and palladium at $ 830 and $ 161 an ounce respectively have not seen such depleted prices since the middle of 2005. Rhodium, which earlier this year at times shot above the $ 10,000 an ounce mark, fell this week to a mere $ 1.600 an ounce.

Gold, relative to other precious metals, has managed to cut a decent picture. At $ 772 an ounce, the yellow metal is off “only” 25 per cent from its all-time high recorded in March this year. Gold seems to be benefitting from the chaos in the financial markets and its historic role as a “safe-haven” asset is, at least partially, going in its favour.

Shortly after the disclosure by the British-Swiss mining company Xstrata that they would be bidding for South Africa’s third largest platinum producer Lonmin, South Africa’s second largest producer Impala Platinum announced that, through an equity-swap, they would be taking over the fourth largest producer Northam Platinum and its parent company Mvelaphanda Resources.

For the larger platinum producers Northam is not only interesting because of its present production of almost 300,000 ounces p.a. (ca. 10 tonnes) but also on account of its ownership of the gigantic Boysendal-Project with platinum reserves of almost 100 million ounces.

Analysts from GFMS Ltd, the prestigious London-based precious metals consulting firm, expect a notable surplus in the platinum market amounting to 120,000 ounces in 2008. Furthermore, they expect the surplus to expand in 2009. They cited the collapse in demand from the automotive industry as the primary reason, although there also has been less demand for the metal from the jewelry industry.

For 2007 GMFS had still calculated a deficit of 207,000 ounces (almost 7 tons).

In July, gold production in South Africa once again declined dramatically, according to a report from the local statistical office. The substantial drop of 16.4% followed lower output in the second quarter of 2008, when production totaled 57 tons, down from 63.5 tons a year earlier.

Reasons for the lower production included the rationing of electricity and temporary mine closures caused by strikes and accidents, according to analysts.

In 2007, South Africa lost its first place ranking on the list of the world’s largest gold producers for the first time since 1905. China, the new front runner, is expected to maintain a solid lead in 2008 as well.

The fourth-largest platinum metal producer in South Africa published its financial statements for the most recent fiscal year today. Profits in 2007-2008 rose 12%, but this was principally a result of a 33% rise in platinum prices, to $1,722 per ounce. Production, on the other hand, fell in the past fiscal year by about 10% to 292,989 ounces. The energy supply crisis in the first quarter of 2008 was the primary cause for the decline in production, though there were also strikes and interruptions in production due to safety reasons as well.

After the unprecedented declines of the past two weeks, precious metal markets have recovered somewhat in the past 24 hours.

Market prices for platinum and rhodium made a particularly good recovery. Due to strong industrial demand, rhodium rose by over $1,000 to $4,700 per ounce. In the same period, platinum increased by about $80 to $1,472 per ounce.

Over the course of the day, gold again ticked upward to about $840, a gain fueled by a surge in the price of oil back to over $120 per barrel. Silver followed gold as usual, increasing by about 6% to almost $14 per ounce.

The rhodium price fell this afternoon to just $3,650 an ounce, and thus lost some 2/3 of its value in less than four weeks. Traders attributed the losses in particular to sales by speculators.

However, rumors persist in the market that an American auto manufacturer sold surplus metal because of the slackness in the auto market.

The World Gold Council announced on Tuesday that gold sales by the European central banks during the current year might reach their lowest level since 1999. In total, the central banks will have sold around 319 tons of gold this year. They would thus fall short of the upper limit of 500 tons set in their gold agreement by a significant amount.

The price for rhodium, the most expensive precious metal, exceeded the “magic” mark of $10,000 an ounce (31.1035 grams) for the first time in history on June 17.

Ongoing interest in the metal on the part of Asian industrial firms is the cause. Demand for rhodium comes principally from the auto industry, where it is used in catalytic converters.

The ongoing demand from industry is currently accompanied by a declining supply. South African mining companies fulfilled their contractual supply quotas despite the production problems in the first quarter associated with the supply of electricity; in contrast to other years, however, they currently have very little extra to metal to sell on the free market.