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ETF Securities: Gold Decouples From U.S. Real Treasury Yields

Monday June 2, 2014 2:55 PM

Gold and U.S. real Treasury yields appear to have decoupled for now, says ETF Securities. “Real Treasury yields -- i.e. adjusted for inflation -- and the gold price are both falling,” the firm says. “That is a break from the usual trend, where falling yields normally (are) good for the gold price. The 3% drop in the gold price last week is likely to have been a function of re-pricing of the risk premium attached to the Ukrainian crisis in a relatively illiquid and directionless market. While Ukraine’s presidential elections on May 25th may be considered a step in the right direction, the situation is far from resolved. Unless we see a renewed strong upward rise in U.S. bond yields, gold looks undervalued at these levels in our view.”

By Allen Sykora of Kitco News; asykora@kitco.com


INTL FCStone Looks For Gold, Oil To Lead CRB Index Lower

Monday June 2, 2014 2:54 PM

INTL FCStone says it looks for the Commodity Research Bureau index to move lower, led by gold and oil. “We base this view on the notion that this year’s ‘Black Swan’ event --the Ukrainian crisis -- while still potentially dangerous, is turning less ‘Black,’” INTL FCStone says in its monthly outlook. “In this regard, although the (recent) Ukrainian elections…were marred by violence, especially in the eastern part of the country, Russian troops stayed put and Moscow did not repudiate the results, as was initially feared. Instead, the Russians said they would reluctantly ‘respect’ the outcome and added they would be withdrawing their troops from the border. After a few uncertain days, both the U.S. Defense Department and NATO officials confirmed that this was indeed the case.” Additionally, Russia and Ukraine appear to be making progress on the issue of Russian providing gas supplies to Ukraine. “Of course, we are not suggesting that the Ukrainian crisis is over, as it still could take ominous twists and turns in the weeks ahead, but in terms of market impact, it seems to be morphing into a localized issue with less chance of triggering calamitous consequences for the global economy or for the specific commodity complexes most impacted,” INTL FCStone says. While the firm sees potential for softer gold, it looks for consolidation in platinum group metals and for base metals to be range-bound. “Interestingly, unlike gold and some of the grains, oil prices have not buckled in the aftermath of Ukrainian geopolitical tensions easing, but we think they will have their turn this month,” the firm adds.

By Allen Sykora of Kitco News; asykora@kitco.com


BAML Sees $1,250, $1,300 Gold In Second, Third Quarters

Monday June 2, 2014 12:36 PM

Bank of America Merrill Lynch lists average gold-price forecasts of $1,250 for the third quarter and $1,300 for the fourth. The metal has recently given back gains from earlier in the year, with the bank commenting that economic activity is seen steadier in the world excluding China, especially in the U.S. However, with Indian elections over, the bank anticipates an appreciation of the rupee partially on accelerating portfolio inflows. “Keeping in mind that the previous administration had curbed gold imports to contain the country's current account deficit, we believe this should incentivize authorities to facilitate an increase of gold shipments in coming weeks and months,” BAML says. “While this may not be sufficient to offset headwinds from the global macro economy, it should give some support to gold, which we believe is unlikely to fall below $1,150/oz as a result.” Meanwhile, the bank lists one potential risk in gold’s favor – if the U.S. and Chinese economies were to underperform. “Should contagion be stronger than we currently factor in and cyclical commodities like the base metals come under pressure, there is scope for a gold price rally,” BAML says. “After a soft first quarter, we also believe that continued weakness in U.S. economic activity may make gold an attractive hedge.”

By Allen Sykora of Kitco News; asykora@kitco.com


BAML: Still No Surpluses In Copper But Would Sell Into Price Peaks

Monday June 2, 2014 12:35 PM

Copper has drawn some support as-expected supply surpluses have not yet materialized, yet Bank of America Merrill Lynch says it would still “sell the peaks” in prices. The red metal has rebounded in recent weeks as fundamentals strengthened in China, with commercial buyers increasing purchases and the government’s stockpiling agency buying some 300,000 metric tons of existing inventories from the private sector, BAML says. “Deficits on the global copper market have subsided on rising mine supply and a structural slowdown of China's economy,” BAML says. “This suggests that sustained rallies are unlikely. Nevertheless, the surpluses market participants have been anticipating have so far not been forthcoming, which is a key reason, the metal continues to trade in a range around $7,000/t (or) $3.18/lb.” However, copper has been volatile and BAML says it is concerned that ongoing reforms by China’s government will impact growth at the same time authorities are unwilling to push through “meaningful” monetary and fiscal stimulus. This may reduce commercial buying. BAML says “near-term, we would sell the peaks in copper, in contrast to nickel, lead and zinc, where we would buy the troughs.” The bank lists average copper forecasts of $6,750 and $7,000 a metric ton for the third and fourth quarters.

By Allen Sykora of Kitco News; asykora@kitco.com


U.S. Mint No Longer Rationing American Eagle Silver Coins

Monday June 2, 2014 8:15 AM

Effective Monday, the U.S. Mint is no longer rationing American Eagle silver bullion coins. “Authorized purchasers will be allowed to purchase as many American Eagle silver bullion coins as they wish,” the Mint says in a memo released just ahead of the weekend. “The United States Mint will continue to monitor its silver Eagle bullion coin demand and adjust its bullion coin production accordingly.”

By Allen Sykora of Kitco News; asykora@kitco.com


Mitsubishi: Strike, Electricity Concerns Leave Supportive Backdrop For Platinum

Monday June 2, 2014 8:10 AM

Mitsubishi says the outlook for platinum remains favorable. An effort by South Africa’s new mining minister to reach a settlement in a four-month-old strike has failed, the firm points out. “A resolution to the dispute in the near-term still appears unlikely,” Mitsubishi says. Meanwhile, concerns over electricity supplies in South Africa re-emerged last week after utility Eskom announced it plans to supply an additional 400 megawatts of electricity to the mines, which is 20% less than that required to operate at full capacity, due to tight reserve margins going into the winter months. “Although this is not a problem at present given that only around half of South African mining capacity is operational due to the strike, it may result in an even slower-than-expected ramp-up to full production once the strikes end,” Mitsubishi says. “Platinum is currently just below the 23.6% retracement of it January to May move – we believe it could push higher again from here, supported by a solid underlying fundamental picture.”

By Allen Sykora of Kitco News; asykora@kitco.com


BBH: Central Bank Meetings, Data Mean Big Week For Global Capital Markets

Monday June 2, 2014 8:07 AM

This is a big week for the global capital markets, with four major central bank meetings, U.S. employment data and a round of monthly purchasing managers indexes, says Brown Brothers Harriman. “It is likely to prove to be the most significant week of not only the first half of the year, but perhaps even the entire year,” BBH says. A meeting of the European Central Bank could be most significant after President Mario Draghi seemingly pre-committed to a move on monetary policy, BBH says. “There is some uncertainty of precisely what the ECB will do. However, the range of options appear be narrowed to interest rate adjustment, forward guidance and perhaps a targeted funding-for-lending scheme. There does not seem to be a consensus for outright asset purchases, but Draghi is likely to emphasize in his press conference that the ECB is prepared to do more if necessary.” Should the ECB move to a negative deposit rate, this would be the most important of the measures that may be announced, as this would be unprecedented among key central banks, BBH says. Other central banks meeting this week include those of Canada, Australia and the U.K. Europe’s manufacturing PMIs released overnight were “almost universally disappointing,” with the euro-area reading coming in at 52.2, compared to the flash estimate of 52.5, BBH says. Meanwhile, the consensus estimate in Friday’s U.S. May jobs report is for a rise of 220,000 in nonfarm payrolls, BBH says, although adding the report has lost some of its market impact since the Federal Reserve is “on something close to auto pilot.”

By Allen Sykora of Kitco News; asykora@kitco.com


Citi: 'Tussle' Emerging In Gold Market Between Jewelry Buyers, ETF Sellers

Monday June 2, 2014 8:07 AM

The pattern for gold in 2014 has been rally in February supported by the re-stocking needs of jewelers after Christmas and the Chinese New Year, but when gold approached $1,400 an ounce, exchange-traded-fund holders saw an opportunity to offload, says Citi Research. “That set a ‘ceiling’ of $1,400/oz, the apparent level at which ETF holders are willing to return as sellers,” Citi says. “The threat is that those ETF holders may be lowering their ceiling constantly such that any jewelry-driven rise above $1,350/oz may now trigger the same ETF sales. The year is therefore turning out to be a tussle between jewelry-trade buying and ETF selling. This is a problem, as the jewelry trade is very seasonal and there will only be strong seasonality kicking in again during October. Gold bulls will have to hope that ETF sellers do not get impatient before then and lower their ceiling even more.”

By Allen Sykora of Kitco News; asykora@kitco.com


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