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Gold SWOT: palladium near all-time highs

Commentaries & Views

Strengths

  • The best performing precious metal for the week was palladium, up 3.01%. Gold rose above its 50-day moving average on Monday as the 10-year Treasury yield and U.S. dollar trended lower. Bullion hit a seven-week high of $1,785 an ounce.

  • Palladium rose as much as 4.8% on Wednesday to $2,895.96 an ounce – a new record high. The metal is up more than 17% so far this year. Palladium is used in catalytic converters to cut emissions in gas vehicles and the market has been in a production deficit for several years.

  • De Grey Mining shares finished Friday's trading session up 20.22% on reporting strong mineralization with visible gold in the core from the McLeod lode of the Crow zones within the Hemi Gold Discovery in Western Australia.

Weaknesses

  • The worst performing precious metal for the week was gold, still up slightly by just 0.04%. Interesting to note that in recent weeks every precious metal has finished with positive week over week gains. Gold fell the most in a week on Thursday morning after better-than-expected U.S. jobs data. Initial jobless claims decreased to 547,000 in the week ended April 17, according to the Labor Department, marking a new pandemic low.

  • PT Archi Indonesia has postponed its planned IPO of as much as $500 million due to weak gold prices and falling stocks, reports Bloomberg. The gold miner is a unit of conglomerate Rajawali Group and would have been the biggest Indonesian IPO since 2011. Gold is down 14% from its record high in August and the Jakarta Stock Exchange Composite Index is down 7% from a three-year high in January.

  • Central bank gold purchases are off to the worst start to the year since 2009. According to the World Gold Council, net changes in central bank reserve holdings for January and February were negative 16.7 metric tons. This is compared to 65.1 tons for the same period a year earlier.

Opportunities

  • India's gold imports from Switzerland rose to the highest in nearly eight years last month, a strong sign that Asian consumer demand has returned. India, the world's number two consumer, imported 82.6 tons from Switzerland in March. "These latest numbers certainly demonstrate the degree of pent-up demand in the country after the implosion in 2020," Rhona O'Connell, an analyst at StoneX, wrote in a note. China's gold imports also surged in March to 38,584 kilograms, according to data from General Administration of Customs. The figure is the highest since January 2020 and up from just 6,272 kilograms in February.

  • Sandvik, a mining equipment, machine tooling and materials technology company, said order intake rose organically in the first quarter by 12% to $2.97 billion. CEO Stefan Widing said demand was driven by strong momentum in mining and continued improvement in short-cycle business. Kitco News notes mining accounts for 40% of the company's revenues.

  • Palladium approached all time highs again this past week. Auto demand is picking up with lockdowns being relaxed across the U.S, but palladium is facing its 10th successive year of supply falling short of demand, thus the positive market dynamics that could keep palladium in the spotlight longer than anticipated. In addition, there are only a limited number of miners with exposure to PGM deposits.

Threats

  • Newcrest Mining CEO Sandeep Biswas said in a media briefing this week that although there is likely to be further consolidation in the gold industry, current valuations make it a tough market to find compelling targets. "At the moment, with valuations where they are, it's going to be very hard to get the sort of returns you're after," Biswas said. "You'd be talking single-digit IRRs (investment rates of return), whereas typically we look at double-digit IRRs as a target for ourselves."

  • Canadian miner Alamos Gold is pursuing a $1 billion claim against Turkey for preventing a mining project from moving forward, according to a company press release. The company will file an investment treaty claim against the country for "expropriation and unfair and inequitable treatment" concerning its Kirazli gold mine. The Turkish government did not renew mining licenses for the project in October 2019 and a year later cancelled a forestry permit. Alamos has operated for a decade in Turkey and expects to take a $215 million impairment charge in the second quarter.

  • China, one of the main drivers of copper prices could fade. The government is reducing its construction stimulus, which is generally negative for materials. There appears to be an absence of government buying right now. Output from South American mines is increasing as vaccines are rolled out.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals 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 commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.