Precious Metals Weekly Round-Up: Stimulus and Closures Propel Sector

- March 27th, 2020

Stimulus packages, closures and positive investor sentiment are broadly benefiting precious metals, with gold on track for its best week since 2008.

North American stimulus packages, refinery closures and positive investor sentiment broadly benefited the precious metals this week, with gold on track for its best week since 2008, climbing 6.6 percent.

Gold broke past US$1,650 on Tuesday (March 24), following the US Federal Reserve massive emergency economic injection to counter the market volatility, global closures and supply chain disruptions brought on by the COVID-19 pandemic.

The yellow metal fell back from the its five-day high mid-week but held above US$1,600 on renewed investor appetite for inflationary hedges.

 

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“Gold and gold stocks have bounced back pretty nicely over the last couple of days, so it’s very possible that the worst is over for gold and gold stocks and the recovery has begun,” said Joe Foster, portfolio manager and strategist at investment management firm Van Eck during a Thursday (March 26) webinar.

Concern of a looming supply crunch is also helping gold hold above US$1,600. Earlier this week, three of the world’s largest gold refineries in Switzerland were closed as the country implements measures to fight the coronavirus.

The trio of refineries, process roughly 30 to 40 percent (1,500 tonnes) of all gold annually. The situation was further compounded when the Rand refinery in South Africa announced it would shut down its smelter and significantly scale back operations in compliance with the country’s nationwide lockdown. Lasting 21-days, from midnight Thursday (March 26) to April 16.

Rand is the only refinery in Africa certified to deliver gold to major international banks. Annually it produces 250 -280 tonnes of refined gold.

As of 10:38 a.m. EDT an ounce of gold was trading for US$1,623.65.

Silver is also on track to for its largest weekly gain since 2008, climbing 11.9 percent from its Monday value US$12.89 to US$14.39 this morning.

Safe haven asset class demand has worked in favor of the white metal this session driving the metal above US$14.70 on Tuesday (March 24).

The gold – silver ratio, which reached an all-time high of 125.89 this month (March 18), is also credited as a tailwind for the currency metal. Currently the ratio is 112.

Some silver producers have also begun ramping down operations to comply and combat COVID-19, which may benefit silver in the longer term.

Silver was trading hands for US$14.21 at 10:41 a.m. EDT.

After spending the first half of the month steadily trending lower platinum prices rallied 17 percent this week as global producers in South Africa prepared for the three-week country wide closure.

 

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A March 25 press release from Sibanye-Stillwater (NYSE:SBGL) stated the company would be putting its gold and platinum group metals (PGM) projects into care and maintenance and advised investors to prepare for a change in yearly outputs.

“This suspension of operations will adversely impact on production at the SA mines and shareholders are therefore cautioned that production for 2020 may differ from previous guidance,” it reads. “Further detail will be provided once there is greater clarity on the possible production impact.”

As the leading country for platinum production and number two for palladium output, the decision to declare a national emergency will likely continue aiding price growth for both metals.

An ounce of platinum was moving for US$1,735.75 at 10:41 a.m. EDT.

The largest gain this week was palladium’s 35 percent rally from US$1,588 on Monday to US$2,253 today (March 27).

Supply issues have been a key narrative in the sector for the past year and the South African shut down has rocketed prices this week.

“The market focus is starting to turn to some of these supply disruptions that the virus brings. South Africa is clearly the main one,” Saxo Bank analyst Ole Hansen told Reuters.

He continued: “So, the focus has shifted somewhat from the risk to having a major drop in demand to the equally challenging condition where we’ve supplies struggling to find its way through to the buyer of the metal.”

Palladium was selling for US$2,145 as of 10:43 a.m. EDT.

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.

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