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LAWRIE WILLIAMS: Some Easter cheer for gold, silver and pgms.

After much of the week with precious metals in the price doldrums, the final couple of days before the Easter weekend saw a halfway decent pick-up in precious metals prices.  Whether they can hold on to, or perhaps extend, these remains to be seen, but they do suggest that there is, at least, some degree of resilience in the precious metals markets, although the pre-Easter surges have been on relatively thin pre-holiday trading.  Whether they can end the year as per my earlier forecasts for the year end made at the end of last year (gold at $2,225, silver at $32.25, platinum $1,285, palladium $2,175) remains in doubt, although in our opinion portents for rising prices, for gold and silver in particular (although I remain dubious about the palladium price) do remain positive with money being poured into the markets by the U.S. and many European governments and the U.S. Fed (and presumably other central banks) looking to be maintaining ultra-low to negative interest rate environments for the foreseeable future.

There are signs too that demand is beginning to pick up in the traditional high-consumption Asian markets.  Gold withdrawals out of the Shanghai Gold Exchange (SGE) in China are running comfortably above last year’s depressed figures and now a report out of Reuters in Mumbai suggest an absolutely massive increase of 471% in India’s gold imports in March (compared with March 2020) to 160 tonnes.  In Q1 Reuters reports that India imported 321 tonnes of gold.  Indian demand tends to be quite price sensitive, so the fall in the gold price during the first quarter of the current year will have likely led to a rise in demand as will the government’s slight relaxation of import tax levels on gold and silver to boost retail demand and reduce the incentive for gold smugglers.  Indian gold demand could well end the year in excess of 1,000 tonnes again – particularly if one adds in gold smuggled in illegally.

As we pointed out in our earlier article on the latest Swiss gold imports and export figures (See: Swiss gold imports and exports – approaching the normal again) Chinese imports of gold seem to be remaining subdued as far as external gold sources are concerned.  But as the world’s largest producer of gold from its mining sector, and as a byproduct from imported base and precious metals concentrates, it is quite capable of meeting any rising internal demand from its own output assuming no purchases from the central bank.  The lower gold import levels seem to have been confirmed too by the latest data and graphic published on Nick Laird’s website which puts China’s February gold imports at only 6.27 tonnes.

To an extent at least, rising demand in much of Asia will help counteract ETF outflows and a decline in central bank gold purchasing.  And there’s also the potential for a downturn in global new mined gold output through reserve and grade depletion and COVID- related production interruptions.

On another positive note, Ed Steer in his latest Gold and Silver Digest, published today, describes the latest Commitment of Traders (COT) report from the U.S.’s Chicago Mercantile Exchange (CME) Group as ‘outrageously bullish’ for gold and silver with big falls in the COMEX short positions in both major precious metals.  He notes that in gold, the commercial net short position fell by 8,077 contracts, or 807,700 troy ounces while in silver, the commercial net short position declined by 4,441 COMEX contracts, or 22.2 million troy ounces.

In his latest Gold Monitor weekly newsletter Canada’s Martin Murenbeeld notes though that as far as Q1 2021 is concerned the gold price averaged $1,794.  Although this was up 13% over that of 2020-Q1, it was, however, down just over 4% from that of 2020-Q4. .Perhaps worse, the 2021-Q1 average was well below the consultancy’s Scenario A most bearish gold price forecast issued in January, to say nothing of Scenarios B and C – the median and bullish price forecasts.  “Plainly, we missed it”, he comments, “We missed the substantial rise in the US 10-year Treasury and TIPS yields and we missed the impact of bitcoin mania on gold. (Our models continue to suggest that bitcoin is having a significant, negative price impact on gold!) And of course, on the back of the rise in US yields, the dollar rose during the quarter as well. What could go wrong for gold did go wrong for gold in 2021-Q1!”

One shouldn’t be too despondent on this analysis by one of the best gold price forecasters out there, as it is early days this year yet.  However we suspect a revised forecast may soon appear, implementing a slight downward provision in the forecasts and perhaps a change in weighting for each of the three estimated scenarios.  But back to Murenbeeld’s latest analysis.  “Gold has had a significant, unexpected setback. But ultra-easy monetary and aggressively stimulative fiscal policies will not end quickly, regardless of the Treasury market selloff” he comments.

Latest data suggests that the U.S. may be recovering faster from the coronavirus pandemic situation than many had forecast.  The latest employment figures for March, which showed a bigger than expected gain of 916,000 jobs, and upwards revisions for January and February, were certainly positive in this respect, but overall daily reported coronavirus infections are still running too high at around 70,000, and may be on the rise with some disturbing numbers in some states which could indicate the early impact of a second wave of high infection rates.  The onset of seemingly more transmissible and deadly virus strains has to be disturbing, particularly in the light of the latest statistics out of Europe, where new virus cases seem to be rising out of control.

Somewhat worrying to observers is that some U.S. states seem to be easing some of their anti-pandemic strictures, possibly prematurely, in favour of trying to resurrect their economies.  U.S. vaccination numbers seem to be advancing well, however, after slow progress earlier on, and acceptance is also higher than forecast, although is still an issue, particularly in some Republican leaning states.

The U.S. economy and markets are currently very much the primary global precious metals and equities price drivers.  While equities, and bitcoin, do appear to this writer as hugely overbought, these markets, boosted by social media memes, seem to continue moving from strength to strength with only minimal signs of slowing down.  When the crash does come, which looks to be inevitable to this observer sooner or later, given prices for many equities seem to bear no relation to their real earnings potential and bitcoin seems to be hugely overhyped, it could be dramatic.  Interestingly gold stocks seem to be perhaps the one sector where earnings potential looks to be hugely positive – yet this sector is largely ignored by the market.  Overall the equities market and bitcoin look to be in a kind of Ponzi scheme frenzy.  Things won’t end well.

03 Apr 2021 | Categories: Gold, Silver

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