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Gold Has Been Rallying. Now It’s Silver's Turn

Release Date:  Saturday, April 13, 2019
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Gold and Silver Prices

Gold closed higher on Friday due to a weaker dollar but ended the week slightly lower.

"'We're recovering a little bit after yesterday's big sell-off. The dollar strength really hurt precious metals and we're seeing some of that reverse with most currencies running a little higher versus the dollar this morning,' said Chris Gaffney, president of world markets at TIAA Bank.

"The dollar fell to its lowest in two weeks against key rivals and was headed for its first weekly decline in four weeks.

"A further dovish tone from the U.S. Federal Reserve and weaker global growth data could propel gold higher, Gaffney said...

"Early in the week, bullion received support from increased buying by central banks and a dovish view from the European Central Bank as well as minutes from the U.S. Fed.

"'Given the marked decline we expect in U.S. equities this year, we suspect that safe-haven assets will soon surge,' Capital Economics analysts said in a note.

"'We think gold investment should be strong... As a result, we expect the price of gold to rally to $1,400 per ounce by end-2019.' ("Gold steadies as dollar retreats, on way to best week in three," Reuters, CNBC, 04/12/19.)

Gold ended the week down $1.60, closing at $1,289.80. Silver ended the week down $0.13, closing at $14.95.

Gold Has Been Rallying. Now It's Silver's Turn - Saefong

Silver could be set to outperform gold.

"Silver has been a lackluster performer this year, but as investors' appetite for gold improves, silver might share in the yellow metal's prosperity.

"'It is difficult to be pessimistic about silver at these levels,' with prices that don't provide an incentive to boost supply, says Maria Smirnova, senior portfolio manager at Toronto-based Sprott Asset Management.

"... 'We expect silver to outperform gold,' says Smirnova. 'Silver has lacked retail investment demand, so a sustained rally in gold will lead to the speculators coming and buying silver.'

"Total physical demand for silver rose 4% last year, to a three-year high of 1.03 billion ounces, according to the Silver Institute's World Silver Survey, compiled by a team at financial data and analytics provider Refinitiv. The report, released on Thursday, also showed that global industrial silver demand fell 1% last year, to 578.6 million ounces. All told, silver's physical market posted a 'minor deficit' of 29.2 million ounces in 2018 which is considered to be close to in balance.

"Smirnova expects industrial demand to 'remain stable, despite slower [economic] growth.' A recent forecast from the International Monetary Fund revealed expectations for global economic expansion of 3.3% this year, down from an estimated 3.5% in January.

"'Silver does not represent large components of end products,' Smirnova explains, pointing out that electronics, cars, and medicines don't use a lot of the metal per unit, so an economic slowdown probably won't have a big impact on it. Its use in solar applications is also 'insulated from economic growth' because that market is 'more driven by government incentives and the need for renewable energy.' Instead, it's the 'return of retail investment demand [that] will be the driving force behind an increase in the silver price,' Smirnova predicts.

"The World Silver Survey found that global investment in silver bars and coins grew 20% last year, with bar demand alone up 53%. The study also revealed a third consecutive annual decline in global production of the metal. It fell 2% in 2018, to 855.7 million ounces. 'Silver is cheap, at $15 [an ounce] as it is not encouraging new supply,' says Smirnova. 'Primary mines are not generating a lot of cash at these levels or are losing money.'" ("Gold Has Been Rallying. Now It's Silver's Turn," Myra P. Saefong, Barron's, 04/12/19.)

China Is on a Big Gold-Buying Spree - Pakiam

Central-bank demand should support gold prices and Goldman Sachs expects gold to be at $1,450 in the next twelve months.

"China's on a bullion-buying spree as Asia's top economy expanded its gold reserves for a fourth straight month, adding to investors' optimism that central banks from around the world will press on with a drive to build up holdings. Prices advanced back toward $1,300 an ounce.

"The People's Bank of China raised reserves to 60.62 million ounces in March from 60.26 million a month earlier, according to data on its website on Sunday. In tonnage terms, last month's inflow was 11.2 tons, following the addition of 9.95 tons in February, 11.8 tons in January and 9.95 tons in December.

"China, the world's top gold producer and consumer, is facing signs of a slowing economy, even as progress is being made in trade negotiations with the U.S. The latest data from the PBOC indicate that the country has resumed adding gold to its reserves at a steady pace, much like the period from mid-2015 to October 2016, when the country boosted holdings almost every month. Should China continue to accumulate bullion at the current rate over 2019, it may end the year as the top buyer after Russia, which added 274 tons in 2018.

"Last year's bullion buying by emerging-market central banks was the most robust in a long time as countries diversified reserves, Ed Morse, Citigroup Inc.'s global head of commodities research, said in a Bloomberg TV interview on Monday. The bank's positive on gold, targeting $1,400 by year-end.

"Spot gold fell for a second month in March even after the Federal Reserve signaled it would pause rate hikes... Still, the longer-term outlook is more bullish as central-bank demand should help support prices, with inflows running as high as last year, according to Goldman Sachs Group Inc., which expects a rally to $1,450 an ounce over 12 months...

"Governments worldwide added 651.5 tons of bullion in 2018, the second-highest total on record, according to the World Gold Council. Russia has quadrupled its reserves within the span of a decade amid President Vladimir Putin's quest to break the country's reliance on the dollar, and data from the central bank show holdings rose 1 million ounces in February, the most since November.

"China has previously gone long periods without revealing increases in gold holdings... The latest pause was from October 2016 until December last year. ("China Is on a Big Gold-Buying Spree," Ranjeetha Pakiam, Bloomberg, 04/07/19, updated 04/08/19.)

Europe slams 'exaggerated' US tariff threat and prepares to retaliate - Ellyatt

Trade tensions between the U.S. and the EU have escalated following the U.S. considering $11 billion worth of retaliatory tariffs against the EU.

"The EU has hit back at new U.S. proposals to target European goods with tariffs, following a World Trade Organization (WTO) ruling over subsidies for Airbus.

"Trade tensions between the EU and U.S. flared Monday after the U.S. said it's considering $11 billion worth of retaliatory tariffs on a range of goods in response to illegal subsidies the EU granted to the aerospace firm.

"The WTO ruled last year that these allowances had caused 'adverse effects' to the U.S., with the decision coming after a long-running litigation battle between the Washington and Brussels over their respective aviation giants.

"Shares of Airbus were trading 2.3% lower Tuesday after the tariffs were proposed. A spokesman for the company said there is no legal basis for the U.S. move to impose sanctions, and said the EU had complied with WTO rulings. The European Commission criticized the proposals.

"'The EU is confident that the level of countermeasures on which the notice is based is greatly exaggerated. The amount of WTO authorized retaliation can only be determined by the WTO-appointed arbitrator,' a Commission spokesman said.

"On Monday, the Office of the U.S. Trade Representative said it would slap tariffs on EU goods ranging from aircraft to fish, dairy products to binoculars, olive oil and wine, according to a preliminary list.

"It said it estimates 'the harm from the EU subsidies as $11 billion in trade each year,' although the amount is subject to an arbitration at the WTO, the result of which is expected to be issued this summer.

"'This case has been in litigation for 14 years, and the time has come for action. The Administration is preparing to respond immediately when the WTO issues its finding on the value of U.S. countermeasures,' U.S. Trade Representative Robert Lighthizer said in a statement Monday.

Double standards

"Both sides have now been found guilty of paying billions of dollars of subsidies to gain advantage in the global aircraft manufacturing business.

"The EU is still waiting to hear from the WTO about what 'retaliation rights' it has after the organization found in 2012 that Boeing too had received billions of dollars in illegal subsidies that had been to the detriment of Airbus. The WTO also ruled in March that the U.S. had failed to comply fully with its earlier ruling to remove all illegal subsidies that Boeing had received.

"The European Commission spokesman also said Tuesday that Brussels is ready to retaliate in kind, noting that in the parallel Boeing dispute, 'the determination of EU retaliation rights is also coming closer and the EU will request the WTO-appointed arbitrator to determine the EU's retaliation rights.'

"Some analysts have accused the U.S. of double standards. GAM's Investment Director for Global Equities, Ali Miremadi, said the U.S.' tariff proposal was 'quite bold.'

"'I have to say the country which is the home to Boeing accusing Europe of state subsidies for Airbus - this is quite bold,' he told CNBC's "Squawk Box Europe" Tuesday. 'It's very well established that both Boeing and Airbus exist only at the discretion of their respective hosts or host governments.'

"President Donald Trump tweeted Tuesday that 'the EU has taken advantage of the U.S. on trade for many years.'" ("Europe slams 'exaggerated' US tariff threat and prepares to retaliate," Holly Ellyatt, CNBC, 04/09/19.)

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