Market Landscapes



Market Landscapes

Market Landscapes

Kitco’s seasoned veteran trader, Peter Hug, provides a snapshot of the current metals market and continued appetite for physical product.

It wasn’t long ago when the pundits, on masse, were calling for gold the break below $1,000 and silver to carry a $10 handle. It coincided with platinum trading below $1,000 and palladium scraping the high $500’s. It was a given that the Federal Reserve would raise interest rates in September, shooting up the US$ and perpetuating the collapse in the commodity complex. Since last November we have argued that the Fed would likely not raise rates in 2015, that deflationary issues were beginning to appear on the horizon and that it was likely that the Fed would be forced into a QE4 position. The latter part of this comment is somewhat tongue in cheek, but it still does have a modicum of possibility. But, I wonder. With the slowdown in China taking hold in mid-summer and European growth beginning to stagnate we suggested that the Fed would absolutely not raise rates in September and initiated an aggressive buy on silver and gold. When the Volkswagen story broke traders aggressively sold platinum on the belief that consumers would now no longer buy diesel products but rather revert to gasoline models. Again, maybe an issue down the road, but certainly not an immediate concern that would justify the platinum price plunging under $900 and ounce and trading at a $220 discount to gold. We again suggested an outright buy for platinum or for traders with less enthusiasm a platinum/gold spread. Platinum has since rallied $140 and the platinum/gold spread has come in to $160. Going forward the metals may take some time to consolidate, but with the Fed on hold, with negative rates in Europe and issues with Chinese equity markets, there is a fear bid under this market for gold and any further negative surprises may create another momentum move higher.

On the physical front, the market has experienced one of its worst squeezes in finished silver investment product. Again, the pundits suggested that there was no silver in the market and all the paper traded assets (EFP’s, bank metal accounts) were actually not backed and the shortage was proof of this. Well, sorry to bust the bubble, but there was ample silver on the market. The issue was one of sub-contractor supplies. Both the US Mint and the Royal Canadian Mint sub-contract with two suppliers for silver blanks. These blanks are sent to the mints where they are struck into the two most favorite North American coins: the US silver Eagle and Canadian silver Maple Leaf. In July, as the summer started, inventories in these blanks was reasonable, given that the summer is generally the worst time-frame for physical demand. Then silver broke down through $15 and retail demand surged catching everyone flatfooted. By the time raw silver was brought in, blanks made and then coins struck, the mints found themselves behind the production curve.

They limited allocations and the perceived tightness caused premiums to soar. We strongly recommended that clients not pay these premiums, which in the case of the silver Eagle represented a 50% premium to the then current silver price. We offered clients a way into the market in the $14’s and now premiums are down by as much as $5/oz on some products. We may again see a tightness issue, when the US Mint switches over from 2015 to 2016 dated Eagles, but if it occurs, work with your dealer on possible alternative products or strategies until premiums settle into an acceptable range.

Kitco supplies investors with precious metals for delivery to Strategic Wealth Preservation’s storage facility in the Cayman Islands. If you’re interested in purchasing metals from Kitco for delivery to the Cayman Islands, please contact Josh Perez (jperez@kitco.com) for more information.



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