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Daily Nugget: Precious Metals Market In A Fix

Published 06/19/2014, 07:26 AM
Updated 05/14/2017, 06:45 AM

To no-one’s surprise yesterday the FOMC announced that they would be tapering their monthly asset-purchases by a further $10 billion, to $35 billion a month. This was despite drawing attention to the slowing in the economic recovery. As expected there was no increase in interest rates and the committee indicated that there wouldn’t be for some time, instead hinting that they may take a more aggressive approach to increasing rates early next year.

Following the news the Gold price climbed above $1,270 and this morning it has edged up further, touching $1,280.

Platinum and palladium are climbing once again, trading at one-week highs, as strike negotiations in South Africa have hit new hurdles. Mine representatives said that the main union AMCU has made ‘unaffordable’ demands beyond the deal that was originally agreed last week.

Premiums in both India and China are down this week as physical demand is low compared to numbers seen in previous months.

The SPDR Gold Trust (ARCA:GLD), the world’s largest gold ETF saw two consecutive days of outflows, this week. These paused yesterday, most likely thanks to the FOMC’s announcement. The likes of Reuters and Bloomberg report that these holdings are near a five-year low and reportedly show bearish sentiment in the market. We would argue, having looked at the movement of gold from East to West that it does not reflect such sentiment but instead there is a change in the nature of gold demand and that the East are very much beginning to control how gold will be held.

Yesterday the World Gold Council announced that it will be hosting a discussion with members of the gold industry in regard to the London Gold Fix. In a press release the lobby group for gold miners said that the age-old fix was in desperate need of ‘modernisation’. We wonder if it’s just in need of annihilation. “The fixing process was established almost a century ago, so it is not surprising that it needs to change to meet today’s market expectations for enhanced regulation, transparency and technology,” said Natalie Dempster, managing director of central banks and public policy at the council.

Tomorrow LBMA members will listen to firms’ proposals for the London Silver Fix. In a worse state than the gold fix, as mentioned above, it will come to an end on August 14th due to Deutsche Bank’s resignation from the process. In a lengthy article discussing the fix, precious metals markets academic, Professor Brian Lucey comments on the archaic process that are both fixes, “When the gold and silver fixes were first set, they were pretty much the only game in town,” Lucey said. “Now we have the data which allows us to get a really good handle on the market. A mechanism that gives more information about more of the market is better for all.”

Mali, Africa’s third-largest gold producer, will see its gold production fall by 12% in the next three years as the country’s largest mines run dry and begin to close. Bloomberg reports, ‘Annual gold output will fall to 41.6 metric tons by 2017 from 47 tons last year, Mining Minister Boubou Cisse’. This will have a big impact on the country, where gold accounted for 8% of GDP and 70% of exports in 2012.

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