precious metals outlook september 2016

P R E C I O U S M E TA L S O U T L O O K
OCTOBER 2016
Copyright CPM Group LLC 2016.
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mentioned here.
2016 Precious Metals Market Outlook
Page 1
7 October 2016
Gold
The sharp decline in gold prices has created a buying opportunity for investors. While there were some initial factors that drove gold prices down, most of the weakness
has been driven by technical sell stops being triggered.
Given the large-scale use of computerized trading today
that use near similar sell stops, such triggers tend to have
an outsized impact on prices. That said, the same is true
on the reverse, in this case suggesting a potential to rise
strongly. Prices can rise as quickly as they fell. The fundamentals to support that increase exist, but are presently being overshadowed by the sharp decline in
prices and concerns related to a potential Fed interest
rate increase in December.
Once the markets settle down following the recent sharp
decline, the weaker prices of these precious metals would
provide an ideal opportunity for investors to enter the
market either to build fresh long positions or to add to
existing positions.
Prices had touched an intraday low of $1,243.20 on 7
October down from a settlement of $1,317 at the end of
September. Prices could soften further, but much of the
weakness in prices is now behind the market. On the
downside, prices could potentially decline to $1,220.
There are several reasons to purchase gold at this time,
with the most immediate one being the U.S. election. On
the upside, gold prices could reach $1,320 or even $1,340
over the next several weeks.
The U.S. election is one of the primary factors that is expected to drive gold prices higher over the course of OcGold Prices: 1 January 2010 to 6 October 2016
$ / Oz
2,500
2,000
1,500
1,000
500
0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Three-Month Gold Price Projections
$ / Oz
1,450
Projected
1,400
1,350
1,350
Actual
1,300
1,300
1,330
1,267
1,300
1,250
1,200
1,220
1,150
A-16 M-16
J-16
J-16
A-16
S-16
O-16
N-16
1,200
D-16
tober. Whichever candidate wins the election 8 November, the outcome could continue to help stimulate investment demand for gold and gold prices into the medium
term. The uncertainty of who will win the Presidency and
the composition of the next U.S. Congress will be behind
the markets, but the uncertainties of the extent of economic and political damage the victors will impose on the
United States and the world will continue to hang above
all financial markets.
Prices should be expected to rise ahead of the election on
8 November. A Trump victory most likely would keep
gold prices rising post election as well. While neither
Hillary Clinton nor Donald Trump is particularly favored
by the markets, Hillary Clinton is perceived as less of a
wild card than Donald Trump, perhaps making her winning somewhat less positive for gold. Donald Trump
meanwhile is new to politics; it is unclear if he were to be
elected president what the United States and global economy would be like under his presidential influence. This
uncertainty makes Donald Trump more positive for gold.
Polls, which are the only indicators the market has
regarding the leading candidate for U.S. president,
have been woefully wrong this year, as was seen in the
case of both the British referendum held in June and
the Colombian referendum last week. The bottom line
is that a Trump presidency is quite possible, even
though he is lagging in polls. A Trump victory would
bring with it a lot of uncertainty globally, which
would be good for gold.
2016 Precious Metals Market Outlook
Page 2
7 October 2016
Gold
A post election rally in gold, if it occurs, is expected to be
dampened by a renewed focus on what the Fed’s next
move will be at its mid-December meeting. If U.S. economic indicators have continued to show strength over
the course of September and November there will be a
greater probability for gold prices to decline following
any run up in prices pre and post election. This decline
will be based on the market expectations that a strengthening U.S. economy will build the case for the Fed to
raise rates in December.
The September U.S. non-farm payrolls report, which was
released on 7 October, came in below market expectations. But that said, the 156,000 jobs that were added to
the economy in the month of September was a respect-
able number, especially given the stage of economic
growth that the United States is in at present. It should
also be noted that Augusts' figure was revised higher
from 151,000 to 167,000. Furthermore, average hourly
earnings also continued to rise in another sign of positivity for the U.S. labor market.
If economic conditions in the United States show signs of
growth or stability there is a strong possibility that the
Fed will in fact raise rates in December. The Fed does
seem more inclined to raise rates, and stable growth in
the economy is likely to push it to pull the trigger in December. This would be the first and only rate hike in
2016, which is down from previous forecasts at the start
U.S. Unemployment Rate
Monthly Data, Through September 2016
Total Nonfarm Payroll
Monthly Data, Through September 2016
600
Median monthly jobs Oct. 10-Aug16:
202,000
400
200
0
Percent
18
600
Percent
18
U6
16
16
U3
400
14
200
12
12
0
10
10
14
-200
-200
8
8
-400
-400
6
6
-600
-600
-800
-800
-1000
Jan-07
-1000
Jul-08
Jan-10
Jul-11
Jan-13
Jul-14
Jan-16
4
4
Above average
underemployment
2
0
Jan-94
Oct-97
Jul-01
Apr-05
Jan-09
Oct-12
0
Jul-16
Auspicious Days For Marriage In India
No. of Days
16
Real and Nominal Wage Growth In the United States
Monthly Data, Nominal data through September, Real data through August
Percent
Percent
10
10
8
6
Nominal Wage Growth
10
6
8
4
2
2
0
0
-2
-2
-4
-4
Real Wage Growth (RHS)
12
8
4
-6
14
-6
-8
-8
Jan-65 Jan-72 Jan-79 Jan-86 Jan-93 Jan-00 Jan-07 Jan-14
6
2
2014
2015
2016
Restocking ahead of
marriage and festival
season
4
2
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Note: Other big gold buying days in India include but are not limited
to, Akshaya Tritiya - May 2016, and Dhanteras - October 2016.
2016 Precious Metals Market Outlook
Page 3
7 October 2016
Gold
of the year by the Fed of four or even five rate hikes during the year. The Fed may be likely to continue raising
rates in 2017, but it will be limited in its ability to do this
in large part because while the U.S. economy is doing
relatively better than the rest of the world, its economy is
not exactly booming. Furthermore, central banks around
the globe remain on a loosening cycle, either keeping
rates ultra low or reducing them further if possible. This
situation will boost the dollar and reduce U.S. competitiveness and domestic inflation.
not exactly clear how a fragmented world will perform
economically in the future, adding to numerous other financial economic, political, and social, uncertainties.
Based on all of these factors in the medium to long term,
CPM Group continues to see more upside than downside
in prices and the present weakness in prices provides a
good entry point for investors with a medium to long
term outlook.
•
Net long positions held by institutional investors on
the New York Comex rose over the course of September, to 31.11 million ounces on 27 September
from 29.17 million ounces on 30 August. This was
not the highest level of net long positions, however,
with net longs having reached 33.01 million ounces
on 6 September, which was second to the record high
of 34.77 million ounces reached in early July this
year. The increase in net long positions was almost
entirely driven by an increase in gross long positions.
Gross short positions were mostly flat around 5.76
million ounces during the month, slipping marginally
to 5.76 million ounces from 5.78 million ounces.
•
U.S. Mint gold coin sales to dealers continued to
strengthen for the second consecutive month in September from levels seen July. Sales during the month
totaled 111,500 ounces, up from 48,500 ounces in
July. Stability in prices is likely to have draw dealers
to stock up on the metal. The weakness in gold prices
during the first week of October is likely to bring to
market some longer term investors as well as inves-
Over the course of the final quarter of this calendar year
fabrication demand for gold also is expected to rise both
in India and China ahead of the festival and wedding seasons in the two countries later this year and early next
year. While demand from the two countries should be
expected to rise it should only be expected to provide
support to prices versus pushing them higher.
While the laying out of a time table for Brexit earlier this
week was the last straw in pushing gold prices sharply
lower, what the eventual consequences of Brexit will be
can only be speculated upon at this time. Such uncertainty regarding the final outcome again is positive for
gold. Furthermore, if Britain comes out stronger after
leaving the EU, there will be more reason for some of the
other states in Europe and also elsewhere in the world
that may want to break away from trade and currency
unions to make the transition. Much of the rapid growth
globally over the past several decades came from globalization, even though it is getting a bad name today. It is
Gross Long and Short Positions of Non-Commercial Positions
Comex Gold Futures & Options.Weekly Data,through 27 September 2016
Million Ounces
45
40
Net Fund Position in Comex
35
30
25
20
15
10
5
0
-5
-10
-15
Short
-20
Jan-96 Jan-99 Jan-02 Jan-05
Jan-08
Jan-11
Million Ounces
45
Long
40
35
30
25
20
15
10
5
0
-5
-10
-15
-20
Jan-14
Gold Price and Total Open Interest
Daily, Through 6 October 2016
Million Ounces
$/Ounce
2,000
1,800
70
65
Total Open Interest
Gold
60
1,600
55
1,400
50
1,200
45
1,000
40
800
35
600
30
400
25
200
2004
20
2006
2008
2010
2012
2014
2016
2016 Precious Metals Market Outlook
7 October 2016
Page 4
Gold
tors that may have felt that they got left out in the
previous run up in gold prices earlier this year. Fundamentals for gold still support stronger gold prices
from present levels.
year and early this year. Since April of this year the
BIS has been reporting increases in gold holdings
similar to those seen back in 2009-2010. As of August, the BIS had increased its gold holdings by
10.26 million ounces, accounting for around 60% of
the total gross additions to central bank gold during
the first eight months of 2016. Other than the BIS,
the primary buyers of gold have been the central
banks of Russia, China, and Kazakhstan, which have
added 3.6 million ounces, 2.3 million ounces, and
720,000 ounces, respectively. The primary seller this
year has been the central bank of Venezuela, which
has reduced its holdings by 2.7 million ounces, on
top of the 3.1 million ounces sold in 2015.
On a net basis central banks have added 13.86 million ounces of gold to their holdings this year through
August. The largest net additions have been made by
the Bank of International Settlements (BIS), which
swapped dollars for gold primarily with commercial
banks in Europe. Over the past few years the BIS had
been unwinding similar swaps that it had put in place
with European commercial banks back in 2009 –
2010, when there was a liquidity problem due to the
Global Financial Crisis. Swaps put in place back then
were unwound for the most part by the end of last
•
Monthly U.S. Eagle and Buffalo Gold Coin Sales by the U.S. Mint
Month
2014
2015
2016
January
133,000
115,500
158,000
February
43,000
30,500
102,500
March
33,000
56,000
45,000
April
56,000
39,500
125,000
May
48,000
31,000
95,000
June
64,500
97,000
88,000
July
35,500
202,000
48,500
August
33,000
121,500
67,500
September
72,500
147,500
111,500
October
88,500
44,500
November
72,500
135,000
December
Total YTD
22,500
518,500
2,000
840,500
841,000
-42.6%
62.1%
0.1%
702,000
-35.9%
1,022,000
45.6%
% Change YOY
Annual Total
% Change Previous Year
M
25
Million Ounces
35
25
20
15
15
10
10
5
5
0
0
-5
-5
-10
-10
-15
-15
-20
-20
-25
Gross Reductions
-30
04
05
06
07
08
09
10
11
12
13
14
1.5
0.5
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
30
-25
2.0
0.0
Gross Additions
20
2.5
1.0
Annual Central Bank Changes in Gold Holdings
2016 Through August
Million Ounces
35
Net Additions/Reductions
30
Annual U.S. Mint Gold Coin Sales to Dealers
Through September 2016
-30
15
16
Monthly Changes to Central Bank Gold Holdings
Excludes China, India, Turkey and IMF Transactions, Through Aug. 2016
Million Ounces
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0
-4.0
-5.0
Jan-10 Jan-11
Jan-12
Million Ounces
7.0
6.0
Gross Additions
5.0
Gross Reductions
4.0
Net Additions/Reductions
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0
-4.0
-5.0
Jan-13 Jan-14 Jan-15 Jan-16
2016 Precious Metals Market Outlook
Page 5
7 October 2016
Silver
In early October silver prices were weighed down by investor profit-taking. Silver had traded above $20 per
ounce as recently as 22 September, but prices fell below
key support of $17.50 on 6 October, back to levels last
seen in June. This downward revision of silver prices was
triggered by a broad reversal of investor sentiment toward precious metals, and was compounded by some momentum-based selling by short-term investors.
Some investors who seemed to have assumed prices were
now firmly lodged above $18.50, the mid-August lows,
were surprised. Many shorter term investors saw the selloff as the inevitable downside to the post-Brexit spike in
prices.
In the near term the same investor concerns that caused a
decline in gold are likely to keep pressuring silver prices
lower. Prices may head toward $17.00 or even late May’s
low around $16.00 on further bouts of selling. However,
as prices decline to these lower levels short-term investors are likely to buy back their previously built shorts,
providing brakes on the decline. It is unlikely for them to
wait until prices reach back to December 2015 lows before reviewing their short positions. This is because many
of the global economic and financial problems which had
fueled positive sentiment toward precious metals earlier
this year have not disappeared and will not go away in
the following couple of months.
In fact, other longer term investors have been taking
stock of the recent price trends and looking for buying
opportunity in silver. Such bargain buying activities may
not emerge immediately to stop prices from falling further, however. Longer term investors are likely to wait
for technical indications of a wind-down in these recent
selling activities, as well as for more favorable macroeconomic and monetary policy cues, before they move forward building fresh longs. Some such long building will
emerge as soon as prices stabilize, probably in the next
few days. More will wait until later this year, perhaps
after the elections. More long position building should
be expected to resurface more potently at the beginning
of 2017, after a possible December Fed interest rate increase. In this case silver prices could bounce back toward $19.00, or $20.00 next year.
Three-Month Silver Price Projections
$ / Oz
24.00
23.00
22.00
21.00
20.00
20.00
20.00
19.00
18.75
19.35
18.00
18.90
17.00
17.00
16.00
Projected
Actual
15.00
14.00
M-16
J-16
J-16
A-16
17.00
S-16
O-16
N-16
D-16
The Gold/Silver Price Ratio
Monthly, Through September 2016
Ratio
Ratio
120
120
100
100
80
80
60
60
40
40
20
20
0
0
72
76
80
84
88
92
96
00
04
08
12
16
Non-Commercial Gross Long and Short Silver Positions
Comex Futures & Options. Weekly Data, Through 27 Sep. 2016
Mln Ozs
Mln Ozs
650
650
Long
600
600
550
550
500
500
450
450
Net Fund Position in Comex
400
400
350
350
300
300
250
250
200
200
150
150
100
100
50
50
0
0
-50
-50
-100
-100
-150
-150
-200
-200
-250
-250
Short
-300
-300
-350
-350
J-14 A-14 J-14 O-14 J-15 A-15 J-15 O-15 J-16 A-16 J-16
2016 Precious Metals Market Outlook
Page 6
7 October 2016
Silver
Investor Sentiment for Silver Mixed in September
Over the course of September investor sentiment toward
silver was generally mixed. By the end of the month their
net positions were little changed from the end of August.
As of 27 September their gross longs in Comex silver had
risen 2.2%, or 13.1 million ounces from the end of August, while their gross shorts rose 6.9%, or 9.9 million
ounces during this period. Money managers have
trimmed down their net long exposures to Comex silver,
which have recorded sideways to lower levels since
reaching a peak of 494.0 million ounces on 26 July. As of
27 September, non-commercial net longs stood at 439.7
million ounces, flat from the end of August but down
roughly 11.0% from 26 July.
and 24 million ounces, down from 25.9 million ounces of
actual production in 2015.
Consumer Tech Spending in the U.S. Expect to Rise
According to the Consumer Technology Association
(CTA), its index that measures consumer expectations
about technology spending in September was generally in
line with last month and last year’s levels. CTA expects
consumer tech spending during this holiday season to
increase 3.1% from the previous year, driven by growth
in sales of emerging technological devices such as virtual
reality, wearable and smart home devices.
Silver Mine Production
According to preliminary global silver mine production
statistics from the World Bureau of Metal Statistics,
global silver mine production was up marginally by 0.6%
during the first seven months of this year. Among the
major producing countries, Peru and Chile were major
contributors of this growth, having recorded 14.7% and
4.0% growth in silver mine output during this period,
respectively. This growth was offset by various levels of
mine output contractions in other producing countries,
with declines reported at Mexico (-3.7%), Australia (12.4%), United States (-3.2 %) and Canada (-4.4 %).
Goldcorp on 3 October announced that it was temporarily
shutting down its Peñasquito mine in Mexico due to an
illegal blockade by a trucking contractor that began on 26
September. The company is in negotiations with the
trucking contractor's representatives and is working with
a contingency plan, which it expected to allow the mine
to restart immediately following the resolution of this
dispute. Goldcorp does not expect this temporary shutdown to impact its overall production and cost guidance
for 2016. The mine’s silver output already was contracting from last year’s levels, however, as its second quarter
output had been affected by a planned ten-day maintenance of its mill. Goldcorp previously had anticipated
production would recover from the second quarter, as
Peñasquito returned to normal operations after its maintenance shutdown. Silver production guidance for the mine
in 2016 was announced earlier this year at between 22
World Silver Mine Production
Annual, YTD Data Through July 2016
Million Ounces
900
800
700
600
500
400
300
200
100
0
95
98
01
04
07
10
13
16 YTD
2016 Precious Metals Market Outlook
Page 7
7 October 2016
Silver
Silver Coin Sales Soften Further in September
Sales of American Silver Eagle coins by the U.S. Mint
were down further, to less than 1.26 million ounces in
September from 1.28 million ounces in August. This
compared to roughly 3.8 million ounces in sales during
the same month last year. During the first three quarters
of this year combined sales stood at 30.2 million ounces,
down 16.4% from 36.1 million ounces of coins sold during the same period last year.
The physical premium for one-ounce American Eagle
silver coins averaged 11.28% above spot prices in September, flat from a daily average premium of 11.26% in
August. This flattened level of physical premia reflects
continuing slow investor demand for silver coins during
September, after a large volume of silver coins were purchased earlier this year.
Annual U.S. Mint Silver Coin Sales to Dealers
Through September 2016
50.0
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Monthly U.S. Mint Coins
Through September 2016
Mln Oz
8
7
6
5
4
3
2
1
0
06
07
08
09
10
11
12
13
14
15
16
Monthl y U.S. Eagl e Sil ve r C oin Sale s by the U.S. Mi nt
Month
January
Fe bruary
March
Apri l
May
June
Jul y
August
Se pte mbe r
O ctobe r
Nove mbe r
De ce mbe r
Total YTD
2014
2015
2016
4,775,000 5,530,000 5,954,500
3,750,000 3,022,000 4,782,000
5,354,000 3,519,000 4,106,000
3,569,000 2,851,500 4,072,000
3,988,500 2,023,500 4,498,500
2,692,000 4,840,000 2,837,500
1,975,000 5,529,000 1,370,000
2,087,500 4,935,000 1,280,000
4,140,000 3,804,500 1,255,000
5,790,000 3,788,000
3,426,000 4,824,000
2,459,000 2,333,500
32,331,000 36,054,500 30,155,500
% Change YOY
Annual Total
% Change YOY
48.5%
11.5%
44,006,000 47,000,000
3.1%
6.8%
Dealer Premia on U.S. Mint Silver Coins
Daily Data through 30 Sep. 2016
35%
Silver American Eagle
30%
Silver 100 Oz. bar
25%
20%
15%
10%
5%
-16.4%
0%
Jan-12
Oct-12
Jul-13
Apr-14
Jan-15
Oct-15
Jul-16
2016 Precious Metals Market Outlook
Page 8
7 October 2016
Silver
Chinese Silver Imports and Exports
Monthly, Through August 2016
SHFE Silver Open Interest
Monthly, Through 30 September 2016
Moz
Moz
25
25
20
20
15
15
10
10
5
5
0
0
-5
-5
-10
Gross Imports
-10
-15
Gross Exports
-15
-20
F-05
A-06
F-08
A-09
F-11
A-12
F-14
200
150
100
50
-20
Net Trade
-25
Million Oz
-25
0
M-12 O-12 M-13 A-13
A-15
J-14
J-14
N-14
A-15
S-15
F-16
J-16
SHFE Silver Trading Volume
Monthly, Through 30 September 2016
SHFE Silver Stocks
Weekly, Through 29 September 2016
Mln Oz
Million Oz
70
25,000
60
20,000
50
40
15,000
30
10,000
20
5,000
10
0
0
Aug-12
Apr-13
Dec-13
Aug-14
Apr-15
Dec-15
M-12 O-12 M-13 A-13
Aug-16
J-14
SHFE Silve r Future s Trading Volume
SHFE Silve r Future s O pe n Inte re st
Thousand Troy Ounces
Thousand Troy Ounces
2012
2013
2014
2015
2012
2016
2013
J-14
N-14 A-15
2014
S-15
F-16
2015
J-16
2016
January
-
830,732 12,941,722 10,185,541
2,424,371
January
-
50,708
116,044
125,425
123,726
Fe bruary
-
508,135 10,614,750
1,633,873
Fe bruary
-
63,509
136,323
96,580
144,020
3,873,600
March
-
63,044
120,612
133,114
163,400
4,292,430
April
-
50,478
122,027
155,267
215,694
3,045,167
May
26,724
59,610
129,057
110,927
181,301
28,068
68,149
119,413
149,714
211,860
March
April
May
1,723,427
782,874 11,627,087
1,505,656
2,880,185
5,430,306
3,893,906
5,841,488
8,563,665
6,430,112
6,064,914
June
1,277,035
1,696,867
5,163,144
4,703,014
2,630,187
June
July
746,234
8,974,535
5,232,757
6,088,910
5,935,216
July
21,715
84,852
113,667
136,675
179,412
43,659
122,635
136,967
103,898
156,385
136,398
834,505 19,585,710
3,433,531
8,352,769
1,055,642
August
Se pte mbe r
1,619,028 15,604,241
4,415,422
4,356,566
3,016,383
Se ptembe r
53,252
84,081
156,961
92,100
O ctobe r
1,125,368
9,607,308
4,607,378
2,784,118
O ctobe r
50,997
105,147
192,560
113,263
Nove mbe r
1,392,174
8,213,988 11,347,493
3,217,963
Nove mbe r
64,234
143,475
144,149
108,209
De ce mbe r
1,537,491 13,348,314 14,604,090
3,235,828
De ce mbe r
58,932
161,601
99,736
132,882
August
Total
10,255,262 83,538,544 93,311,586 69,824,887 27,906,869
Note s: Monthly total volume . O pe n Inte re st is month-e nd.
Data is calculate d on one side , inste ad of both buy and se ll side s as re porte d by SHFE.
Source : Shanghai Future s Exchange
2016 Precious Metals Market Outlook
Page 9
7 October 2016
Platinum
A sharp downward correction in platinum prices at the
beginning of October pushed prices below the psychologically significant $1,000 level, down below $970 on 6
October. Prices have not been below $1,000, let alone
$970, since June. Prices had been as high as $1,065 as
recently as 22 September. This sharp decline in platinum
prices was part of a broad selloff of precious metals,
which seemingly was triggered by bearish concerns about
the global economy as well as anticipation of an increase
in the interest rates by the Fed this December.
In the particular case of platinum, however, this bout of
selling also reflects continuing investor unease toward
perceived weak fundamentals for platinum. Investor sentiment had started to turn sour since the second week of
August, when prices almost touched $1,200 on 10 August. As there was no immediate shortage of platinum
and a lack of signs for demand improvement, investors
started to liquidate their physical inventories of platinum
and reduced their net long exposures to Nymex platinum
futures and options.
This downward trend grew more apparent in September.
While there had been some bargain buying by fabricators
at the beginning of September, the scale and impact of
such bargain buying was limited. The spot premium for
industrial grade platinum sponge remained soft as of
early October. Notably in the Chinese market, which is
the largest market for platinum jewelry, seasonal restocking activities for September contracted sharply compared
to the past couple of years, reflecting pessimism toward
growth in platinum jewelry sales for the fourth quarter.
Such fabricator buying activities have been outweighed
by stale-bull investor selling by far. As prices trended
lower over the course of September and the beginning of
October, there was additional downward pressure from
momentum-based short-term investors, who have seized
this opportunity to sell the metal. These momentumbased trading activities could gradually wear themselves
out over the next couple of weeks in October, as prices
head back to lows around $930 - $940. In the event of
another broad selloff of the precious metals complex
platinum prices could test $900. Profit-taking by investors who had shorted platinum earlier may lend some
strength to platinum toward the end of this year. This
Three-Month Platinum Price Projections
$ / Oz
1,250
Projected
1,200
1,150
1,100
1,080
1,080
1,050
1,048
1,000
1,000
975
950
930
900
900
Actual
850
M-16
J-16
J-16
A-16
S-16 O-16 N-16 D-16
The Gold/Platinum Price Ratio
Monthly, Through September 2016
1.5
1.3
1.1
0.9
0.7
0.5
0.3
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Platinum Priced in South African Rand and in U.S. Dollar
Daily Data Through 6 October 2016
Index: 3 Jan. 2005 = 100
400
Platinum (ZAR)
350
Index
400
350
Platinum $
300
300
250
250
200
200
150
150
100
100
50
50
-
05
06
07
08
09
10
11
12
13
14
15
16
2016 Precious Metals Market Outlook
Page 10
7 October 2016
Platinum
combined with some fabricator bargain buying activities
could lift prices back up toward $1,080.
South Africa PGMs Mining
In early October Impala Platinum (Implats) and the National Union of Mineworkers (NUM) announced that they
reached a two-year wage agreement that is effective between July 2016 and June 2018. The agreement will increase the basic salaries by 7.5% - 10% during this twoyear period for workers at Implats’ refinery operation at
Springs, South Africa. Half of the workers at this operation
are NUM members. While members of NUM had started a
strike on 27 September, this wage deal was quickly reached
by the week’s end. This peaceful resolution of wage disputes sets a precedent for NUM’s ongoing wage negotiations with other platinum mining companies. Previously in
late September, NUM had rejected an offer of a 6.75% hike
by Anglo American Platinum (Amplats) and threatened a
strike.
More worrisome are the negotiations between the Association of Mineworkers and Construction Union (AMCU) and
Anglo American Platinum, Implats, and Lonmin. These
talks are continuing. Public comments by the negotiators
range from intransigence to being ‘fairly close’ to a wage
agreement, as of 6 October. AMCU is talking tough, but
having been seen as putting workers through a painful fivemonth strike in 2014 with little positive results to show for
the suffering, AMCU may well not wish to remind its
members of their financial losses and personal suffering
from two years ago.
num’s end use in auto catalysts, posted a 13.9% increase
from the same period last year. In August alone sales
were up 31.2% year-on-year, helped by a robust increase
in the sales of new light commercial vans, which posted a
35.8% annual gain during the month.
Sales of commercial vehicles in China were up 3.2% year
-on-year during the first eight months of this year. This
growth benefited from higher replacement demand for
the country’s existing commercial fleets, as well as the
Chinese government’s tax reductions on new car purchases, which were effective in 2016 and expire at the
end of this year. This policy-driven sales growth has been
positive for platinum’s auto end use in this market during
the short term, as consumers have been encouraged to
make advanced purchases of vehicles prior to the start of
next year. Going into the first few months of 2017, however, commercial auto sales growth may drop due to the
expiration of this tax reduction as well as seasonal factors.
YTD Commercial Vehicle Sales Growth by Region
Data for August 2016
20.0%
20.0%
10.0%
10.0%
0.0%
0.0%
Commercial Vehicles
Sales of medium and heavy trucks in the United States
increased 7.6% year-on-year from January to August.
While total commercial vehicle sales figures for September have not been released, during the month major car
manufacturers have reported slower growth and even
contraction in sales from the elevated levels in September
of last year. Sales growth in this market for the remainder
of this year is expected to be moderate.
From January to August this year sales of commercial
vehicles in Europe, the largest regional market for plati-
-10.0%
-10.0%
-20.0%
-20.0%
-30.0%
-30.0%
-40.0%
-40.0%
China
U.S.
Europe Japan
India
Brazil
Note: YTD growth for Brazil as of July 2016, due to a delay in the reporting of official statistics.
2016 Precious Metals Market Outlook
Page 11
7 October 2016
Platinum
Nymex Platinum Futures & Options Market Participant Positions
Thousand Troy Ounces
Month Ago
27-Se p Volume
Ye ar Ago
% Volume
%
Large NonC ommercial Market
Participants
2,554.7 -456.6
-15.2% -95.2
Money Managers
1,566.9 -513.6
-24.7% -12.3
-0.8%
O ther trade rs
987.9
57.0
6.1% -82.9
-7.7%
-709.0
-126.1
21.6% 941.8
-57.1%
Money Managers
-514.0
-98.4
23.7% 633.2
-55.2%
O ther trade rs
-195.0
-27.8
16.6% 308.6
-61.3%
Gross Longs
Gross Shorts
-3.6%
1,845.8 -582.7
-24.0% 846.6
84.7%
Money Managers
1,052.9 -612.0
-36.8% 620.9
143.7%
O ther trade rs
792.9
3.8% 225.7
39.8%
Ne t Position
29.2
Money Managers Continued to Sell Platinum
Over the course of September money managers continued
to liquidate their net long positions in Nymex platinum
futures and options, continuing the downward trend in net
longs since the week ended 9 August. As of 27 September money managers held 1.8 million ounces of net longs
in Nymex platinum, down 24.0% from the end of August
and down roughly 35.1% from the recent peak of 2.8 million ounces on 9 August. During this period between 9
August and 27 September there was a steady reduction of
gross longs and buildup of gross shorts held by institutional investors. As of 27 September money managers’
gross longs had declined 15.2% from a month ago to 2.6
million ounces, while their gross shorts had increased
21.6% during the same period to around 709,000 ounces.
Nymex Platinum Commercial Positions
Nymex Futures & Options. Weekly Data, Through 27 Sep. 2016
Large Comme rcial
Marke t Participants
Gross Longs
490.9
5.7
1.2% -292.6
-37.3%
Gross Shorts
-2,582.8 567.2
-18.0% -719.2
38.6%
Ne t Position
-2,092.0 572.9
-21.5% -1011.8
93.7%
Note: Ne gative numbers indicate short positions.
Source : CFTC
'000 Ozs
1,200
800
400
0
-400
-800
-1,200
-1,600
-2,000
-2,400
-2,800
-3,200
-3,600
-4,000
95
'000 Ozs
1,200
800
400
0
-400
-800
-1,200
-1,600
-2,000
-2,400
-2,800
-3,200
-3,600
-4,000
Long
Net Position in Nymex
Short
97
99
01
03
05
07
09
11
13
15
Disaggregated Nymex Non-Commercial Platinum Positions
Nymex Futures and Options. Weekly Data, Through 27 Sep. 2016
Non-Commercial Gross Long and Short Platinum Positions
Nymex Futures & Options. Weekly Data, Through 27 Sep. 2016
Thousand Ounces
'000 Ozs
3,800
3,600
Thousand Ounces
3,600
Other Traders
3,000
Long
3,000
Money Managers
2,400
'000 Ozs
3,800
Long
2,900
2,900
2,400
Net Position
1,800
1,800
1,200
1,200
600
Net Fund Position in Nymex
2,000
2,000
1,100
1,100
600
0
0
-600
-600
-1,200
200
200
-700
-700
-1,200
Short
-1,800
-1,800
-2,400
-2,400
10
11
12
13
14
15
16
Short
-1,600
-1,600
-2,500
-2,500
95
97
99
01
03
05
07
09
11
13
15
2016 Precious Metals Market Outlook
Page 12
7 October 2016
Platinum
Chinese Platinum Market Activity
Shanghai Gold Exchange Monthly Platinum Trading Volume
Data Through September 2016
In September sales of platinum on the Shanghai Gold
Exchange (SGE) recorded a 22.7% increase from August
to 64,912 ounces. This was down roughly 48.5% from
September 2015, however. September generally records
some seasonal strength in platinum sales on the SGE, as
jewelry fabricators restock ahead of the wedding season
beginning in October. Restocking activities were notably
weak this year, however, due to muted expectations for
sales of platinum jewelry relative to jewelry made of
other precious metals such as gold and silver. In the
meantime despite healthy sales growth of commercial
vehicles and tighter emission standards, continuing low
utilization of platinum in the auto catalysts of the Chinese
market has weighed on total Chinese fabrication demand
growth.
Troy Ounces
200,000
Troy Ounces
200,000
180,000
180,000
160,000
160,000
140,000
140,000
120,000
120,000
100,000
100,000
80,000
80,000
60,000
60,000
40,000
40,000
20,000
20,000
0
0
06
07
08
09
10
11
12
13
14
15
16
Shanghai Gold Exchange Platinum Trading Activity
Troy Ounces
Trading Volume
January
February
March
April
May
June
July
August
September
O ctober
November
December
Total
% Change
2009
2010
2011
2012
2013
2014
2015
2016
2008
94,041
83,881 103,365
70,474
59,865
64,334 119,151
63,594 139,052
21,219
79,219
53,209
69,124
62,501
56,907
89,090
52,631
41,185
50,927
88,157
63,498 116,546 102,915 121,948 116,868
94,587
74,750
58,675 108,637
65,813
84,524 116,482 166,123
79,027
65,491
73,207
38,517
77,323 106,933
76,680 117,189 137,412
50,477
79,766
94,234
28,646
79,766
82,756
99,635
71,600 170,495
70,185 104,361
55,139
83,238
78,769
66,166
47,680
77,998 102,143
71,117
80,055
42,439
63,433
79,316
80,184
99,957
77,515
98,574 109,377
84,846
52,920
86,260
91,533
66,777 136,126
99,699 173,614 117,415 126,160
64,912
106,644
57,968
68,449
97,513 100,021 102,625
75,651
41,024
42,793
45,590
75,683
81,502
80,763 147,636
68,031 117,350
62,405 _______
61,794 _______
79,927 _______
88,125 _______
83,946 _______
156,478 _______
78,962 _______
71,632 ______________
736,799 931,954 912,760 1,067,887 1,050,493 1,498,289 1,045,349 981,498 637,839
20.5%
26.5%
-2.1%
17.0%
-1.6%
42.6% -30.2%
-6.1% -15.1%
Source: SGE, Bloomberg
Note: Trading volumes are counted single-sided, adjusted from
SGE reported data, which counts both buy and sell side
transactions. The total and % change in 2016 is on a YTD basis.
Chinese Net Imports of Platinum
Annual, Through August 2016
Thousand Ounces
3,500
Thousand Ounces
3,500
3,000
3,000
2,500
2,500
2,000
2,000
1,500
1,500
1,000
1,000
500
500
0
0
2000 2002 2004 2006 2008 2010 2012 2014 2016
Note:
Note:
Orange
Orange
bar
bar
refers
refers
to toYTD
YTD
volume
volume
inin
2013
the previous year
Chinese Net Imports of Platinum
Monthly Volume, Through August 2016
'000 oz
350
300
250
200
150
100
50
J-14
A-14
J-14
O-14
J-15
A-15
J-15
O-15
J-16
A-16
J-16
2016 Precious Metals Market Outlook
Page
7 October 2016
13
Palladium
Palladium was the best performer of the precious metals
complex during September, recording a nearly 8% month
-on-month gain. There were no particularly bullish factors driving prices higher. It appeared more to be a matter of short covering in the absence of bullish news that
contributed to the price gain, although investors also liquidated some of their long positions in response to disappointing September U.S. auto sales figures. The fact that
investors continued to liquidate their previously built
short positions even without any positive news may have
been more of an indication of waning investor interest in
general toward palladium rather than a shift from bearish
to bullish sentiments.
A sharp decline in Comex gold prices in the first few
days of October dragged palladium prices down. Prices
fell to an intraday low of $675 on 5 October, the lowest
since 19 September when the intraday low hit $671.25.
Palladium investors appeared to continue to liquidate
some of their gross long positions while keeping their
gross shorts largely flat. A small decline in Nymex palladium total open interest in early October from the end of
September partially reflected this move by institutional
investors.
Although the September jobs report, which was out on 7
October, came in softer than expected, the job gains were
decent. Average hourly earnings also have ticked up,
which could serve as a positive sign for policymakers
who had said before that the pace of wage growth had yet
to suggest the jobs market had tightened enough.
Data released earlier this week, which showed strong
growth in U.S. services sector and the manufacturing sector’s return to expansionary territory, pointed to continued economic recovery in the United States. This coupled with a slew of upbeat data over the past few weeks
keeps the case of a rate hike by the Federal Reserve in
December on the table. That said, the Fed will also take
into account external risks ranging from the Brexit to a
slowing Chinese economy when setting rates.
Between now and the November election in the United
States, palladium prices are likely to continue to track
gold prices in the absence of fresh positive catalysts. In
this scenario palladium prices may be temporarily pulled
up to their late September highs around $720 - $725. If
China reports a sharp increase in auto sales in the last
three months of the year, possibly a result of a rush to
buy before the sales tax subsidies expire at year-end,
prices could rise further, to $740 in November or December. Conversely, if U.S. auto sales surprise to the down-
$ / Oz
850
Three-Month Palladium Price Projections
Projected
800
750
725
700
670
686
650
600
740
680
620
590
550
Actual
500
450
A-16 M-16 J-16 J-16 A-16 S-16 O-16 N-16 D-16
Palladium Prices: 1 January 2010 to 6 October 2016
$ / Oz
950
900
850
800
750
700
650
600
550
500
450
400
350
Jan-10
Apr-11
Jul-12
Oct-13
Jan-15
Apr-16
Gross Long and Short Positions of Non-Commercial Positions
Nymex Palladium Futures &Options. Weekly Data, Through 27 Sept.
'000 Oz
'000 Oz
3,600
2,800
3,600
Long
Net Position in Nymex
2,800
2,000
2,000
1,200
1,200
400
400
-400
-400
-1,200
Short
-1,200
-2,000
-2,000
A-95 N-97 J-00 J-03 A-05 M-08 O-10 M-13 D-15
2016 Precious Metals Market Outlook
Page
7 October 2016
14
Palladium
side, investor profit-taking could take prices down around
$650.
Depending on the results of the U.S. general election,
palladium prices could move higher or lower along with
gold in mid-to-late November and December. Growth of
palladium fabrication demand is expected to slow down
this year, which could keep prices from significant gains,
but this slowdown is likely to be a mild one. The sheer
sizes of the U.S. and Chinese auto markets mean that fabrication demand for palladium remains healthy, which
provides support to prices. Palladium prices are likely to
move in a $590 - $740 range after the November election.
•
•
•
Net long positions held by institutional investors on
Nymex palladium fell 1.6% to 1.34 million ounces at
the end of September from the end of August. This
decline in net longs was accompanied by a 2.4% fall
in their gross longs and a 4.2% decline in their gross
shorts during this time. Investors appeared to take
cues from disappointing auto sales in the United
States and liquidated some of their gross longs. It is
worth noting that even without any bullish factor,
investors continued to cover their previously built
short positions during September, indicating that investor interest in palladium may be fading. This
short covering helped palladium prices buck the trend
toward weaker prices in the precious metals complex
during the month.
Total open interest in Nymex palladium rose 11% to
2.81 million ounces at the end of September from the
end of August. This increase in palladium total open
interest was accompanied by a rise in prices, which
partially suggested fresh long buying rather than liquidation of gross short positions in Nymex palladium,
even though gross long positions held by institutions
were declining at the same time. This also was reflected in the commitment of traders’ reports released
by the CFTC. The reduction in investor long and
short positions during a time of rising total open interest may be explained by rising commercial positions as market makers took on metal liquidated by
investors, including ETF positions.
A sharp decline in Comex gold prices during the first
few trading days of October weighed on palladium
prices. Palladium investors appeared to have liquidated some of their gross long positions. A small
decline in Nymex palladium total open interest in
early October from the end of September partially
reflected this move by institutional investors.
Disaggregated Non-Commercial Positions
Nymex Palladium Futures &Options. Weekly Data, Through 29 September
Thousand Ounces
Thousand Ounces
4,000
4,000
Money Managers
Long
3,500
3,500
Other Traders
3,000
3,000
Net Position
2,500
2,500
2,000
2,000
1,500
1,500
1,000
1,000
500
500
0
0
-500
-500
-1,000
-1,000
Short
-1,500
-1,500
-2,000
-2,000
Nov-09 Dec-10 Jan-12 Feb-13 Mar-14 Apr-15 May-16
Source: CFTC, Bloomberg
Palladium Prices, Total Open Interest, and Nymex Inventories
Daily, Prices & Inventories Through 5 Oct., OI Through 6 Oct.
Mln Oz
$ / Oz
1000
5.0
900
4.5
800
4.0
700
3.5
Prices (Left scale)
3.0
600
2.5
500
2.0
400
Open
Interest
300
200
100
D-02 J-04 F-06
Source: Bloomberg
Nymex Stocks
S-07 A-09 N-10 J-12
1.5
1.0
0.5
0.0
J-14 A-15
U.S. Auto Sales
Million Units
20
18
16
14
12
10
8
6
4
2
1992 1995 1998 2001 2004 2007 2010 2013 2016
Source: Bloomberg. Note: 2016 data is through September. Red bar is
sales in 2015 for same period in 2016.
2016 Precious Metals Market Outlook
Page
7 October 2016
15
Palladium
U.S. auto sales contracted in September, down by
0.5% year-on-year to 1.43 million units. The pace of
decline is slower than the 4% year-on-year fall in
August. In the first three quarters of this year auto
sales in the United States grew only 0.3% year-onyear to 13.04 million units. This compares to a yearon-year increase of 5.1% during the same period in
2015.
•
•
Ratio of US Cars to Light Truck Sales
Passenger Cars
100%
Light Trucks
90%
80%
70%
60%
50%
While pickup trucks and SUVs continued to provide
support to overall auto sales in the United States,
growth of this group of vehicles continued to slow
down. In September, sales of light trucks rose 4.5%
year-on-year to 873,649 units, compared to a 24%
year-on-year increase in the same month in 2015.
During the January-September period sales of light
trucks rose 7.5% year-on-year, compared to a year-on
-year growth of nearly 12% in the same period in
2015.
40%
Sales of global semiconductor rebounded slightly in
August, rising by 0.5% year-on-year to $28.03 billion. During the January-August period sales fell
4.9% year-on-year to $212.4 billion.
25,000
30%
20%
10%
0%
2002
2004
2006
2008
2010
2012
2014
2016
Annual Vehicle Sales in China
Thousand Vehicles
•
20,000
15,000
10,000
5,000
05 06 07 08 09 10 11 12 13 14 15 16
Source: Bloomberg. Note: 2016 data is through August. Red bar is for
same period in 2015.
Monthly Global Semiconductor Sales
Data through August 2016
Annual Percentage Change in Auto Sales
60%
Billion USD
35
Billion USD
35
50%
40%
30
30
30%
20%
25
25
20
20
15
15
10
10
06
07
08
09
10
11
12
13
Source: Semiconductor Industry Association,via Bloomberg.
14
15
16
10%
0%
-10%
-20%
-30%
-40%
-50%
Brazil
Russia
China
USA
India
-60%
2009 2010 2011 2012 2013 2014
Source: Bloomberg. Note: 2016 data is through August.
2015
2016
2016 Precious Metals Market Outlook
Thous. Oz
Thous. Oz
10,000
10,000
Million Ounces
10
8,000
6,000
6,000
Fabrication Demand
9
4,000
8
2,000
2,000
7
6
6
5
5
4
4
Russian Supply
0
80
84
88
92
96
00
04
08
12 16p
Palladium Secondary Supply and Price
$/Ounce
Thousand Ounces
2600
1,000
2400
900
Annual Average Price (right scale)
2200
800
2000
700
1800
1600
600
1400
500
1200
400
1000
800
300
600
200
400
100
Secondary Supply
200
0
0
76 80 84 88 92 96 00 04 08 12 16p
Source: CPM Group
3
2
2
South African Mine Production
1
0
8
Secondary Supply
7
3
76
Million Ounces
10
Other Mine Production
9
Total Supply
4,000
16
Annual Palladium Supply
Projected Through 2016
World Palladium Supply and Demand Balance
8,000
Page
7 October 2016
1
0
0
76
80
84
88
92
96
00
04
08
12
16p
CPM Group LLC
CPM Group is a fundamentally based commodities research shop. We develop our own proprietary estimates of gold, silver, platinum, and palladium supply and demand on a global basis, drawing on every
resource we can find, including our own extensive list of contacts involved in precious metals around the
world. We have been doing this sort of research and analysis since the 1970s, far longer than anyone
else in the business. We also undertake research in specialty metals, base metals, energy and agricultural
commodities. We are known for our basic fundamental research, a wide range of financially oriented
consulting services, and our expertise in using financial derivatives to structure financing for producers,
refiners, industrial users, and investors interested in either hedging or investing in commodities.
Our investment philosophy is simple: We are value investors who base our decisions on what to buy,
sell, hold, or avoid on the fundamentals of each asset, and the macro-economic, financial and political
environmental factors that we expect will affect that asset’s value. We have concerns, expressed in this
report and elsewhere, about long-term imbalances in government deficit spending, public and private
debt, and a wide range of other economic and political factors. We don’t expect the world’s financial
system to collapse, however. That is not the way the world tends to work. More likely economic outcomes in the real world lie between the extremes of cataclysmic collapses and nirvana. We advise our
clients – and practice what we preach – to have some of their wealth in gold and silver as an insurance
policy against a catastrophic failure, but we also advise them to invest other portions of their money in
precious metals and other assets based on the assumption that that sort of failure does not occur. We focus on investing based on likely scenarios, but with an eye always open to outlying events that take the
world’s markets by surprise. We have watched investors who were so worried about a collapse that they
missed some of the largest stock and bond market rallies of all times over the past 30 years, while
watching their safe haven assets fluctuate eight-fold in value up and down, and then up and down again.
We prefer our clients to buy and sell precious metals and other assets based on cyclical and other developments, while also maintaining that long-term insurance policy in case the levee breaks.
CPM Group LLC
30 Broad St.
37th Floor
New York, NY
10004
USA
T. 1-212-785-8320
www.cpmgroup.com
info@cpmgroup.com