| |
Kitco Precious Metals and Economic Reivew - Historical Data Reveal Trends and Expectations
|
|
|
Kitco Precious Metals and Economic Review – Week Ending April 25, 2008
April 26, 2008 – 7 PM ET
Last week, we observed some weakness in gold, silver, platinum, and palladium. With good long-term support steaming from economic weakness, inflationary pressures, and a declining dollar value over the course of this past year, many question why we have observed this type of shift in sentiment as well as wonder whether the sentiment is transient.
I will wager that the sentiment is transient. Furthermore, the past nine years of data (1999 through 2007) reveals to us that, individual economic and market factors aside, we should actually expect a downturn in the metals around the onset of the second quarter.
The data revealed that, for the months of April to June, the metals showed a marked decline from anywhere between 1% to as high as 9%. Moreover, the metals would generally pick up around August to December, recovering from the losses, as well as pressing upward through January of the following year. Again, this does not give us an absolute indication that we will observe the same pattern for 2008, as the credit crisis and economic conditions can play on the markets differently. I can say that, so far, the data on the metals’ performance has turned up as expected and if the metals continue along this path, then we should expect to see a positive year-end growth. The average year-end growth from January to December for the metals over the past nine years of data came in at around 13%.
Now, on to my usual weekly review…
Gold
Gold’s London PM Fix edged down over the course of the week, falling by 2.7% from the week prior. Beyond the trend that we observed in the historical data, gold had run counter to the mild improvements in the U.S. dollar as well as positive global equity performance. Gold’s average price posted $905.13 per ounce, 2.4% higher than its 120-day (6-month) moving average. Real annual gains remained strong and came in at 29% last week.
Silver
Silver’s London Fix would also edge down over the past week. Strength in the metal was observed last Wednesday with the release of Mitsui Mining and Smelting statement that platinum could be replaced by silver in catalytic converters used to clean car exhaust fumes in diesel engines. The application will be limited, as it will predominately be for agricultural vehicles. Furthermore, the implementation will not come any time soon. The goal for the transition in the input is expected by 2012.
Knowledge of the use of silver as an input to catalytic converters was not enough to support its price through the rest of the week. Its average price came in at $17.49 per ounce, down 2.9% from the week prior. Even with the downturn, its average price would rest 5.5% higher than its 120-day average. Silver posted 24% in real annual gains.
Platinum Group Metals
As with gold and silver, platinum would move down over the course of the week, pausing momentarily with Lonmin’s production results. Lonmin is the world’s third largest platinum producer, accounting for three-fourths of global output, and had forecasted sales to come in at 775,000 ounces over the full year, down by 9.9%. So far, second quarter results revealed a fall by 16% from the year prior. The reductions have been associated with the South African power crisis.
Production results came in mixed with the news that silver will be used, in a limited fashion, as an input to catalytic converters. Platinum had fallen by 0.6% to an average of $1,999 per ounce. Its price still sits above its 120-day moving average of $1,757 per ounce. Real annual gains remain the highest among the metals at 49%.
Palladium moved down 2.6% from the week prior, posting an average price of $446.33 per ounce, still higher from its 120-day moving average of $416 per ounce. Real annual gains posted 15% by the week’s end.
Lastly, rhodium came in the strongest out the metals, as it maintained an average price of $9,125 per ounce throughout the course of last week. Its average price moved above the week prior as well as above its 10-day to 120-day moving average. Real annual gains remained strong, coming in at 42%.
Well, this wraps up this weekly review. Until next time, take care and I wish you all a very good week.
Wendy
Additional Details on Metal Performance
Apart from rhodium achieving a steady state at $9,125 per ounce last week, the metals had followed each other in an overall downward trending price path. The Hong Kong dollar gained with mild improvements in the U.S. dollar, which moved up 0.3% against a basket of 6 major trading currencies last week. Even with a steady stream of bids over the Hong Kong market, the NY market downward pull would be enough to offset any price gains obtained earlier in the metals. A negative correlation between the Hong Kong dollar and the metals was observed.
Also of interest came the performance of crude oil against the metals. Typically, the metals and crude oil follow each other very closely, resulting in a strong positive correlation. WTI crude oil gained 4% over the week while the metals fell by an average of just under 3%.
Lastly, the expected correlation was observed between equities, as loosely indicated by Standard and Poor’s 500 Index, and the metals. The S&P 500 gained one-half of a percent over the course of the week while metals fell, confirming the expected inverse relationship between the variables. The S&P 500 was not the only gainer last week. Overall, many of the equities tracked in this review had posted gains. A listing of equities and their weekly performance for selected countries can be found at the end of this article.
There was an overall negligible correlation between spot prices and lease rates for gold and silver last week. So far, no clear pattern has been established with the results derived from the correlations. What is clear from the data is that both the USD BBA LIBOR as well as the forward bid rates in the futures market for all the metals from 1-month through 6-month term had fallen from the week prior. The decrease in the LIBOR suggests that there was a reduction in liquidity pressures from international funding markets and a possible easing of global credit concerns. The reduction in the metals’ forward rates suggests a dampening in sentiment for futures contracts for a term between 1-month to 6-months. A 1-year contract still posted positive growth for gold, silver, and platinum.
U.S. Brief Statistical Update
There were no improvements on the economic front. There still exists strong fundamental support for positive metal performance. Inflation expectations are expected to rise, as WTI crude oil came in over $120 per barrel last week. There does not seem to be much easing in this market even in light of global economic concerns. Typically, oil prices are dampened by weaker economic performance, as demand for oil falls. Recently, this simply has not been the case for WTI crude oil, as supply concerns from Nigerian rebel attacks and U.S. inventories coupled with potentially transient investor interest seem to be supporting its price.
On the dollar front, the Federal Open Market Committee will be meeting this April 30. We are expecting a 25 basis point cut in interest rates as well as a mention that further monetary policy easing will be put on hold. Foreign exchange markets have already factored in the expected announcement – justifying the 0.3% increase in the USDX last week. Nevertheless, the dollar’s value remains very low, down 11.7% against a basket of 6 major currencies from one year ago.
U.S. consumer and overall global investor sentiment edged down. The University of Michigan’s Consumer Sentiment Index came in at 62.6 points this April, down by 27% from 12 months prior, while State Street’s Investor Confidence Index came down 21% to post at 72.8 points.
Equities
Equities came in mixed, but would manage to post gains by the end of the week on better than expected earnings reports. China’s Shanghai Composite posted a 9.29% one-day gain last Thursday with the announcement of a reduction in its stock trading tax by 0.2 percentage points to 0.1%. The move reduced share transaction costs and boosted investor sentiment.
Silver Catalytic Converter: Mitsui Mining new autocatalyst uses silver, not platinum
South African Power Crisis: Lonmin’s Production Report (March 2008)
****
Feedback: Ever had questions regarding the precious metals market? Have you ever wanted an explanation regarding the usefulness of an economic variable? If so, then please send us your questions and they may be addressed in up and upcoming articles found exclusively at Kitco In Focus.
Please note that you will not be contacted with a response directly and that your question may be posted on www.kitco.com. By sending us your questions, you automatically give Kitco Metals Inc. the right to publish your question.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
Copyright © 2007 Kitco Inc.
|
