Quarterly report on the world precious metals market for Q4 2019
16. 01. 2020
Gold surpassed the price of $ 1,525 per troy ounce by the end of the year, adding 19% for the whole 2019 year. Its growth has long been strongly influenced by the behaviour of central banks - both by rates set by them and massive gold purchasing by central banks. Also, difficult trade relationships between the U.S. and some other countries and the problems of miners have influenced prices of precious metals…
3 January, 2020, Prague - The last quarter of 2019 brought the expected slight gold price correction. Gold price has been rising since the beginning of the year and its growth peaked in September. Although the growth had been really steep, the price correction was not as significant as one might expect. Price of Gold increased by 19% within 9 months, which was followed by slight weakening (by 5%). However, December completely offset this loss and gold closed the year 2019 with 19%. The reasons for the gold increase rise have not changed - generally low interest rates and their further cuts, U.S. trade wars with China and the E.U., and concerns about the world economy recession.
In November, the stock exchange price of gold dropped below $ 1,450 per troy ounce for a while, then returned to $ 1,480 and, by the end of the year, it again exceeded the psychological threshold of $ 1,500 and strengthened to $ 1,525 per ounce. The number of investors, who are convinced that we are on the threshold of another long-term bullish (growth) trend - similar to 2009-2011, when gold price increased from $ 700 to $ 1,900 per ounce, is increasing.
It is also necessary to monitor the situation on the stock market, which records its highs. The Down-Jones Index surpassed the level of 28,500 points, but it did not have a real negative effect on the price of gold. Interestingly, both stocks and gold are currently strengthening. The reason is probably that investors are trying to earn short-term in the growing stock market while hedging their risks with gold in the long term. Risks in the stock market are usually suppressed as long as possible, but this may even deepen any possible financial crisis. The longer the gap between the real value of companies and their value in the stock market widens, the more painful return to reality.
However, also unexpected problems may come into play in addition to the expected problems. A smouldering conflict between the U.S. And Iran might be one of them. Not only the fear of conflict drives the price of gold up. Yet, this is the primary reason. The fact that if the situation in the Middle East escalates, oil prices will logically increase, may be a secondary one. This will consequently result in higher inflation rate. Oil is a necessary raw material in all sectors of economy and its price increase is immediately reflected in prices of goods and services. So, the gold price will be driven not only by the fear of the conflict itself, but also by the fear of inflation. We know from history that gold is the only effective cure for inflation.
Even central banks believe gold is good means for hedging. This is evidenced by their continued massive purchases. In 2019 the highest amount was purchase ever since the end of the so-called gold standard, namely 668 tons of gold. This year purchases are expected to break record again. It is clear that central bank demand will play an increasing role in the demand for gold and will push the price of gold up.
Precious metals in the 4th quarter of 2019
Precious metals in the 4th quarter of 2019
Gold - following the sharp appreciation since the beginning of the year, it has consolidated its price below $ 1,500 per troy ounce for some time to cross this threshold and close the year at $ 1,525. As for the gold our recommendations have remained unchanged: keep and buy the gold. Use short-term market corrections for shopping when the price falls below the 30-day running average.
Silver - followed the gold again. The price of silver went through a correction to $ 16.50 per ounce and then rose to $ 18.30. Silver did not exceed the $ 19.00 threshold. Concerns remain about the economic recession, which pushes the price of silver in the opposite direction to investment demand. Our recommendation is to hold silver.
Platinum - Platinum and palladium markets have been affected by the problems of ESKOM, the South African energy company. It supplies 95% of all electricity in South Africa. However, it currently has enormous grid quality problems, which pushed the power supply down to only 55% of capacity. As a result, the performance of South African mining companies has halved, as many have had to reduce or even stop their operations. ESKOM is now the greatest risk for the entire South African industry and society. A power supply collapse would not only cause the economy drop but also chaos in this already fragile society. Our recommendation for platinum is to start shopping below $ 900 per ounce.
Palladium - has been doing very well since the beginning of the year. In the short term, it exceeded the psychological threshold of $ 2,000 per ounce in mid-December. It moves steadily around USD 1 900. The rise in price is due to the aforementioned problems in South Africa and also due to the fact that the second big producer, Russian Norilsk Nickel, seems not to be in a hurry with its production increase. Of course, the high price suits them and they try to get the most out of the current problems in South Africa. Given ESKOM's ongoing problems, a short-term price increase above $ 2,000 per ounce can be expected. However, in long-term the price reduction is expected. Our recommendation is to sell the palladium.