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Volatile Political and Economic Activity Around the Globe Dictates Gold’s Movements in 2018



  • Volatile Political and Economic Activity Around the Globe Dictates Gold’s Movements in 2018

New York/London/Johannesburg: Today Refinitiv released the GFMS Gold Survey 2019, the 52nd in the series of annual Surveys, looking at the shifts and developments in the global gold markets, their fundamentals and their drivers over the year and setting the scene for the future.  As usual the prospect for higher price depends on risk hedging at the professional level while grass roots activity should support a higher base price this year and next.


  • Jewellery fabrication declined 4% year-on-year to 2,129 tonnes, with healthy gains from North America offset by falls across Europe and Asia.
  • Gold used in industrial fabrication saw a modest increase in 2018, rising 3% to a four-year high 391 tonnes, helped higher by a robust electronics segment which enjoyed a 4% annual rise on the back of strong growth in the semi-conductor market.
  • Total physical demand saw little change in 2018, slipping by less than 1%, with a stronger official sector coupled with gains in industrial demand, offset by a contraction in jewellery fabrication and retail investment.
  • Net official sector purchases reached their second highest level this century, standing at 536 tonnes in 2018 on the back continued and fresh acquisitions from Emerging Markets (EM).
  • Mine production grew 2% in 2018 to a total of 3,332 tonnes, fuelled by a considerable production increase in Indonesia and the United States.
  • Total cash costs rose by 5% to $696/oz, while all-in sustaining costs increased by 4% to $897/oz.
  • Global scrap supply fell 3% in 2018 to 1,178 tonnes, a three-year low, as weak price action limited recycling.


Total physical gold demand slipped less than 1% in 2018, after a double-digit rise in the previous year. Jewellery fabrication retreated, slipping 4% on an annual basis as gains in North America were offset by falls in Europe and the Middle East, with offtake in Asia sliding 5% year-on-year as a double-digit decline in Indian fabrication dragged the total lower. Meanwhile, gold demand for retail investment retreated 11% last year, driven lower by a 19% year-on-year decline in bar investment; demand from the official sector surged in 2018 to reach net purchases of 536 tonnes, a 47% annual rise and the highest level since 2012. Elsewhere, industrial demand recorded its second consecutive annual increase, gaining 3% over 2017 volumes, helped by continued growth from the electronics sector, which hit a four year high of 288 tonnes.

Global jewellery fabrication edged 4% lower in 2018 to an estimated 2,129 tonnes. Weakness across Europe, following turbulent internal politics and cooling trade, saw fabrication demand across the region slide 6% year-on-year to a record low, driven lower by a precipitous decline in Turkey following the collapse of the local currency, and a fall in Italian offtake. Counterbalancing this weakness was a strong performance from North American fabrication which jumped by an impressive 8% in light of a stronger dollar and improving economy, with demand from the United States 10% stronger on a year-on-year basis.

Meanwhile fabrication demand in Asia, which as a bloc dominates demand at over 80% of the global total, was weaker last year retreating 5% from 2017 volumes. Chinese jewellery fabrication returned to growth for the first time since 2013, rising 2% to 688 tonnes, with demand boosted by the market’s preference for a return to pure gold items. Falling short of China in terms of overall tonnage, and following a surge in growth in 2017, Indian fabrication demand retreated 12% on an annual basis, reaching an estimated 632 tonnes. Demand in the

Middle East was weak with some markets in the region severely impacted by the introduced Goods and Services Tax (GST) in the UAE.

Gold used in industrial applications rose 3% in 2018, the second consecutive annual rise, to 391 tonnes, helped higher primarily by continued growth from the electronics sector, which hit a four year high of 288 tonnes last year. However, demand was tempered in the final months of 2018 as a result of the United States-China trade dispute and the uncertainly that it created across the supply chain. Demand for gold used in other industrial and decorative applications edged 1% higher, while dental demand continued the long term downtrend, slipping 2%.

Net official sector purchases continued to increase in 2018, marking the ninth consecutive year of purchasing at a strong level, with activity rising by 46% or 274 tonnes to 536 tonnes, marking the second highest level of demand this century. While Russia continued its seventh consecutive year as the largest gold acquirer, buying 274 tonnes of gold in 2018, second place was split between Kazakhstan and Turkey which each bought 51 tonnes of gold. While Kazakhstan and other CIS countries remained key players increasing their gold reserves last year, the introduction of demand from other EM countries (which previously had recorded muted or zero transactions this century, such as India), supported this positive result. Alongside purchases (with gross sales levels remaining unimpressive), another key theme last year was ongoing gold repatriation, with countries such as Hungary and Turkey keen to hold their gold on home soil. Total identifiable investment, which includes physical bar and coin investment plus ETP movements, posted a 19% decline, to 982 tonnes, its lowest level since 2007, with a surge in coin demand of 14% unable to offset the weakness in physical bar demand. Meanwhile, ETPs inflows were 67% lower than in 2017, recording 59 tonnes last year.


Global mine production rose by 2% in 2018 to 3,332 tonnes, due in part to higher grades and throughput at Indonesia’s Grasberg and full-year operation at Canada’s Rainy River and Brucejack mines. Substantial output increases were also posted at Mali’s Fekola mine and DRC’s Kibali mine, after an intensive ramping-up of their operations. On the other hand, lower grades at Veladero and Peñasquito mines and lower throughput at Lagunas Norte produced a combined loss of 16 tonnes. While remaining the largest gold producer, China’s efforts to reduce the mining industry environmental impact pushed production down by a further 6% in 2018. At a regional level, North America’s gold production increased 7% or 35 tonnes from 2017, while Africa’s output contracted by 11% or 17 tonnes, the biggest annual decrease since 2012.

Mining costs rose once again last year on a Total Cash Cost (TCC) basis by 5% to an average of $696/oz, while All-In-Sustaining Costs (AISC) increased by 4% to $897/oz. Higher fuel costs and lower grades were the main reason behind the cost rise, partially offset by a significant currency depreciation in Australia, Argentina and Indonesia, among other producing countries. South Africa continues to be the most affected by a rise in mining costs, as electrical power disruptions and lower output pushed TCC forward by 10% to $1,107/oz and AISC by 12% to $1,335/oz.

The global producer hedge book increased by 4% year-on-year to total 219 tonnes. The strength of the U.S. dollar during most of the year pushed local gold prices in Australia and Canada to record-high levels, which many companies secured through forward contracts, especially during Q4 2018. The top three net-hedgers were Gold Fields, Newcrest and Westgold, incorporating a combined 29 tonnes to the hedge book, while de-hedging was led by Russian companies, as Polyus exercised 15 tonnes of barrier options and Petropavlovsk delivered 6 tonnes in forwards. We estimate hedging activity will continue to grow during the first quarter of 2019, as favourable price conditions are present.

Global scrap supply declined for the second year in succession in 2018, slipping 3% to 1,178 tonnes as a broadly stable U.S. dollar gold price failed to illicit higher recycling rates. The Asian markets dominate supply at almost 55% of the total, with this grouping recording a 4% annual fall last year, despite a material rise in India. Japanese scrap flows fell sharply following a government crackdown on smuggled gold, with recycling volumes slumping by almost a third. Elsewhere, a stronger economic footing helped drive recycling volumes lower in North America, while in Europe, scrap flows rose by 2% in 2018, primarily as a result of the surge in Turkish scrap.

Price and Market Outlook:

By 19th February this year, the gold price had increased by $10/oz to $1,341/oz, its highest level since April 2018 (although prices have retreated since then falling back below $1,300/oz). Behind this surge, was a return of positive investor sentiment towards the metal, with ETPs recording their highest level of inflows since April 2013 by 30th January, while net managed positions jumped by 71 tonnes (at the time of writing), driven by a rise in gross long positions (after a short covering rally took gross short positions to their lowest level since June 2018 by January). We forecast that supply will outpace physical demand again this year, leaving the market in its fourth year of surplus at 250 tonnes. However, on a growth basis, while supply is expected to modestly contract (on the back of falling mine production), physical demand growth is forecast to be boosted by 6%, driven by a significant lift in retail investment, while jewellery and industrial demand will also pick up. Given the recent downgrade in economic growth, unemployment and inflation data coming out of the United States (limiting the upwards momentum in the U.S. dollar), the Fed announced in March that it will leave interest rates unchanged this year (a move away from the estimated two rate rises previously expected). While this is positive for gold, further supportive factors may arise from a possible equity market correction, as the health of emerging market and developed countries are questioned, particularly in light of the ongoing and unresolved trade tariff war between the United States and China.

On a regional basis, major economies such as China and indeed Europe will continue to face uncertain growth this year, specifically in the face of Brexit and indeed Europe’s general elections in May (in which Italy could crash out of the EU leading to possible contagion across the bloc). We believe central banks will continue to build their gold holdings at a robust pace this year in order to diversify their assets, while higher gold prices will boost scrap levels coming back from the market (to levels last recorded in 2016).

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and, with over a decade experience in the global financial markets.

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Crude Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend




Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

Oil retreated from an earlier rally with investment banks and traders predicting the market can go significantly higher in the months to come.

Futures in New York pared much of an earlier increase to $63 a barrel as the dollar climbed and equities slipped. Bank of America said prices could reach $70 at some point this year, while Socar Trading SA sees global benchmark Brent hitting $80 a barrel before the end of the year as the glut of inventories built up during the Covid-19 pandemic is drained by the summer.

The loss of oil output after the big freeze in the U.S. should help the market firm as much of the world emerges from lockdowns, according to Trafigura Group. Inventory data due later Tuesday from the American Petroleum Institute and more from the Energy Department on Wednesday will shed more light on how the Texas freeze disrupted U.S. oil supply last week.

Oil has surged this year after Saudi Arabia pledged to unilaterally cut 1 million barrels a day in February and March, with Goldman Sachs Group Inc. predicting the rally will accelerate as demand outpaces global supply. Russia and Riyadh, however, will next week once again head into an OPEC+ meeting with differing opinions about adding more crude to the market.

“The freeze in the U.S. has proved supportive as production was cut,” said Hans van Cleef, senior energy economist at ABN Amro. “We still expect that Russia will push for a significant rise in production,” which could soon weigh on prices, he said.


  • West Texas Intermediate for April fell 27 cents to $61.43 a barrel at 9:20 a.m. New York time
  • Brent for April settlement fell 8 cents to $65.16

Brent’s prompt timespread firmed in a bullish backwardation structure to the widest in more than a year. The gap rose above $1 a barrel on Tuesday before easing to 87 cents. That compares with 25 cents at the start of the month.

JPMorgan Chase & Co. and oil trader Vitol Group shot down talk of a new oil supercycle, though they said a lack of supply response will keep prices for crude prices firm in the short term.

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Crude Oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return



Crude oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

Oil prices rose on Monday as the slow return of U.S. crude output cut by frigid conditions served as a reminder of the tight supply situation, just as demand recovers from the depths of the COVID-19 pandemic.

Brent crude was up $1.38, or 2.2%, at $64.29 per barrel. West Texas Intermediate gained $1.38, or 2.33%, to trade at $60.62 per barrel.

Abnormally cold weather in Texas and the Plains states forced the shutdown of up to 4 million barrels per day (bpd) of crude production along with 21 billion cubic feet of natural gas output, analysts estimated.

Shale oil producers in the region could take at least two weeks to restart the more than 2 million barrels per day (bpd) of crude output affected, sources said, as frozen pipes and power supply interruptions slow their recovery.

“With three-quarters of fracking crews standing down, the likelihood of a fast resumption is low,” ANZ Research said in a note.

For the first time since November, U.S. drilling companies cut the number of oil rigs operating due to the cold and snow enveloping Texas, New Mexico and other energy-producing centres.

OPEC+ oil producers are set to meet on March 4, with sources saying the group is likely to ease curbs on supply after April given a recovery in prices, although any increase in output will likely be modest given lingering uncertainty over the pandemic.

“Saudi Arabia is eager to pursue yet higher prices in order to cover its social break-even expenses at around $80 a barrel while Russia is strongly focused on unwinding current cuts and getting back to normal production,” said SEB chief commodity analyst Bjarne Schieldrop.

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Crude Oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather




Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

Oil prices rose to $65.47 per barrel on Thursday as crude oil production dropped in the US due to frigid Texas weather.

The unusual weather has left millions in the dark and forced oil producers to shut down production. According to reports, at least the winter blast has claimed 24 lives.

Brent crude oil gained $2 to $65.47 on Thursday morning before pulling back to $64.62 per barrel around 11:00 am Nigerian time.

U.S. West Texas Intermediate (WTI) crude rose 2.3 percent to settle at $61.74 per barrel.

“This has just sent us to the next level,” said Bob Yawger, director of energy futures at Mizuho in New York. “Crude oil WTI will probably max out somewhere pretty close to $65.65, refinery utilization rate will probably slide to somewhere around 76%,” Yawger said.

However, the report that Saudi Arabia plans to increase production in the coming months weighed on crude oil as it can be seen in the chart below.

Prince Abdulaziz bin Salman, Saudi Arabian Energy Minister, warned that it was too early to declare victory against the COVID-19 virus and that oil producers must remain “extremely cautious”.

“We are in a much better place than we were a year ago, but I must warn, once again, against complacency. The uncertainty is very high, and we have to be extremely cautious,” he told an energy industry event.

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