By: Rhona O'Connell, Head of Market Analysis
Rhona O’Connell | Head of Market Analysis, EMEA and Asia regions
Silver shipments to India reflect the parlous state of the market
Highlights:
Poor India demand for silver reflected in Swiss exports, as is (to a degree) the increase in interest in the United States.
Markets moving into risk-on mode after potential progress over Phase One, and a further improvement in the German Ifo Industrial confidence index – but Germany now running a budget deficit.
Continuing our delving into the Swiss trade statistics, today we look at silver. India, as the world’s largest consumer of silver jewellery, medals, bars and coins, would be expected to be a reasonably large silver trading partner, and this does indeed turn out to the case. Since the start of 2017 India has accounted, on average, for 13% of Swiss silver exports, while the United Kingdom, another key terminal market, has accounted for 20%.
Indian demand for silver in jewellery, silverware and physical investment instruments in 2019 is estimated from Metals Focus numbers as 5,536t, or 39% of the global total in those instruments; this is a contraction of just 3% against 2018, which is a pretty robust performance in the face of the improvement in the price from $14 in the first half of 2019 up towards $19 on the back of gold's re-rating in mid-year. Swiss exports to India last year were just 230t for a monthly average of 19.2tpm.
However – in the first four months of this year exports held up and averaged 20.2tpm, but in May to July they have completely evaporated to average just 18 kilos per month. The Indian silver market is trading at a sizeable discount to OTC and while there have been some faint signs of life in the gold market, silver is still firmly on the back foot. Given this it is hardly surprising that the market is now becoming swamped with silver as (as we have noted many times before), some 70% of silver production is as a by– or co-product of gold or base metal mining and refining operations, along with industrial scrap return. Given this and the fact the gold is drifting lower, silver is coming under some slight pressure after failing at $30 earlier this month.
Meanwhile the numbers for the United States are also interesting as they reflect the increased demand for the metal in response to the dramatic fall in price when the financial sector came under pressure in February and March, with silver shedding 36% to a near-eleven year low. The sharp dip in May could well reflect that fact that as logistical problems affected the gold market, refineries were concentrating on getting gold out of the plant and the other precious metals took something of a back seat for a while. The drop in COMEX silver inventories (chart on page five) also demonstrates increased demand for the metal, as does the increase in premia that silver coins were commanding. US Mint sales of silver Eagles so far this year are up by 33% year-on-year, while the Bloomberg numbers show ETF uptake of 8,714t in the year-to-date, which underpins the price performance so far this year, as it absorbs the equivalent of global industrial demand and drives the market into sizeable deficit.
Precious Price Performance
Gold; constrained by resistance from the 10D and 20D Moving Averages at $1,928 and $1,931 and edging towards the lower band of the medium-term uptrend. Short term gold has been in a horizontal trend for the past week, which is now under threat at $1,925.
Silver; in a similar pattern to gold with the ratio broadly flat. Holding to $26.50, but the moving averages are also exerting some downward pressure.
Platinum; found some support at $900 towards the end of last week, but remains in a short term downtrend with the key MA’s above spot at $938 (10D) and $942 (20D). Some support between $850 and $885.
Palladium; still meandering in very narrow ranges, fractionally below $2,200 with some support from the Moving averages at $2,160 and $2,170 but conditions remain quiet and few operators are prepared to commit either way.
Precious Metals
Gold and silver are both drifting lower with moderately bullish noises coming out of the talks between U.S. and Chinese trade officials. Positive results from the German Ifo Survey (below) have boosted the euro against the dollar, but for now gold and silver are drifting as the markets monitor geopolitical developments, especially as the Campaign season is now getting into full swing in the United States. Jackson Hole gets underway this week and Jay Powell’s speech on Thursday will command attention.
Ok Tedi Mining Ltd is to restart its eponymous mine in the week starting 14th September, six weeks after suspending activity due to the virus.
The Head of Turkey’s Gold Miners Association has stated that they expect domestic mine output to rise to 44t the year (from 39t last year). Domestic mine production is almost invariably all bought by the central bank.
New Zealand company Mint Innovation is reported to be planning to open Britain’s first plant for recovering gold from electronic scrap, and will also be the first to use bacterial processes rather than cyanide, utilising hydrometallurgy and biotechnology. The plant is expected to be opened within the next twelve months, thereby obviating the need to send domestic e-scrap into the EU for treatment and incurring tariffs after the UK has left the EU.
Base Metals
Mixed to positive today as the markets move into risk-on mode on the back of apparent progress over Phase One along with better economic news out of Europe. Copper LME inventories now stand at their lowest since July 2006. Zinc is also eking out gains with Sumitomo suspending operations at Minera San Cristobal in Bolivia with at least 41 workers testing positive for the virus.
Oil
Harsh weather conditions are helping oil prices, with Brent again above $45.00. Hurricane Marco has been downgraded to a Tropical Storm, but Tropical Storm Laura is poised to form into a Category Two hurricane and will reach wind speeds of 110mph when it makes landfall, which is expected to be by Wednesday evening. The threat of the twin hurricanes has prompted U.S. offshore oil majors and refineries to shut operations, with U.S. offshore crude production shutting in 82% of output, approximately 1.5M bbl/d, while 57% of natural gas production has also been turned off.
General
EU; Germany’s GDP contracted at a record rate in Q2, dropping by 9.7%, while the Ifo Business Confidence Survey showed a further improvement in sentiment in August. Government borrowing in an effort to keep the markets stable sent the budget into a deficit of 3.2% of annual GDP, against a 2.7% surplus last year.
Ifo (a survey of ~9,000 companies in Germany) posted its fourth consecutive improvement in August, with the confidence index coming in at 92.6, slightly ahead of expectations. Corporate assessment of the current conditions rose to 87.9 against 84.5 in July while expectations were 97.5 after 96.7 last month.
Key this week
Jackson Hole Symposium; Jay Powell speaks on Thursday
GDP figures for France are due on Friday, flash estimate –13.8%.
China July trade data with country breakdowns for energy and commodities
Charts (in the .pdf):
Spot gold; spot silver; spot platinum; spot palladium
The U.S. Benchmark Yield and the TIPS Index, Silver COMEX inventories
Gold and Silver; gold and the dollar
Platinum & Palladium; Pt/Pd ratio
Bloomberg Base Metals Three-Month Index; Cu & Al
S&P 500 + auto component; S&P+North American Natural Resources
Major Government Bond Yields; U.S. and EU Two-Year yields
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