Commodity Trade Mantra

Record High Global Silver Demand Expected Even As Gold Famine Hits India

Record High Global Silver Demand Expected Even As Gold Famine Hits India

Record High Global Silver Demand Expected Even As Gold Famine Hits India

Gold prices slipped lower Wednesday and Tuesday after initial upside moves, as the U.S. dollar rose on some signs of progress in the U.S. fiscal standoff, while investors’ hopes increased that a U.S. debt default will be avoided. Gold futures prices for December fell to $1315.40 after they hit a near one-week high at $1,327.94 in the previous session on safe-haven demand. The budget impasse that has shut down parts of the U.S. government entered its second week and still looked set to continue. The United States faces an October 17 deadline to raise its $16.7 trillion debt limit. A few gold traders and investors continue to be optimistic as during the last debate over the U.S. debt ceiling in 2011, gold hit an all-time high of $1,920 an ounce. Congress had reached an agreement only at the last minute. “The Fed will probably postpone its retreat from quantitative easing, which could help to push gold prices up,” Commerzbank said. The situation is indeed serious enough to send out warnings. Zerohedge recently showed for the first time on record the US government is riskier that US banks. The fact of the matter is that the yield on short-term Treasury-Bills is above the yield on US interbank loans. T-Bill yields (the US government’s “risk”) have surpassed short-term LIBOR (US Banks’ “Risk”). Accommodative monetary policies favor gold as low interest rates encourage investors to put money into non-interest-bearing assets. Gold prices till now, have taken quite a beating in September, bucking its seasonal average monthly return of 2.3%. The political battle between President Barack Obama and Congress, China’s Golden Week, and India’s gold import restrictions likely weighed on the metal.

Gold Famine Hits Demand from India

India, the world’s biggest buyer of gold, has raised the import duty on bullion three times this year, taking it to 10%, and in July the government told importers that a fifth of their purchases would have to be turned around for export, leaving only 80% for domestic use. Gold importers in India started processing orders to re-stock ahead of the peak wedding and festival season and after the customs department cleared remaining consignments at a major airport. Gold imports had virtually come to a halt in India for about two months after a new rule that required a fifth of all imports to be re-exported. Banks are just beginning to place orders after uncertainty over the rules were clarified. India’s gold demand could rise as much as 15% this quarter to 300 tonnes as pent-up demand following a good monsoon keeps the country on track for yearly demand estimated at 1,000 tonnes. Gold has always been an integral part of Indian culture and is given as an endowment for marriages and for other auspicious and religious reasons. More “auspicious” days, when people buy gold, is seen helping to boost demand. “There are 20% more auspicious days and also there is pent-up demand from last quarter. Monsoon has also been good, so all indications are demand will be robust,” said Somasundaram PR, World Gold Council’s (WGC) India managing director. However, the WGC does not expect a repeat of April and May, when imports soared.

According to the finance ministry, India imported 304 tonnes in April and May, two and a half times more than two month’s average, after prices fell more than 10%, amid anticipation of further restrictions on gold. In July, India proposed supply restrictions by tying imports for domestic consumption to exports, and hiked the import duty for a third time to 10% in August. July-September imports may have shrunken to 100 tonnes, the WGC official said, quoting market estimates. Despite this, demand in 2013 could rise to 900-1,000 tonnes from 864 tonnes last year, he said. Demand for gold is likely to be sustained as more people are expected to demand gold in the absence of a bank account in rural areas, which contributes to about 60-70% of the demand. The federal government has been asking consumers to refrain from buying gold and estimates gold imports to be at 750-800 tonnes in the year to March 2014. India imported 393.68 tonnes of gold from April to September 25, slightly higher than the average 60 tonnes per month. But government restrictions have led to a sharp slowdown, with imports in August and September at just 10.5 tonnes.

Gold Famine in India triggers massive Silver demand

Indian silver imports are on pace to hit a record high this year as the wedding and festival season drives up buying of the precious metal instead of the traditional gold, made scarcer and dearer by official measures aimed at cutting the trade gap. Higher silver demand in the world’s biggest buyer may help support prices, which have fallen almost 30% this year on the international market and are on track for their biggest annual drop in almost three decades. Ever since the Indian government started adding measures to curb gold imports, demand for silver has seen a sudden surge. Moreover, there is a general scare in the market that the government might soon start curbing silver imports also; as a result, traders are stocking up silver. But I think that the increase in silver buying is unlikely to spark a fresh policy response from authorities, as in the case of gold, since the value of silver that is imported is far lower than that of gold and therefore not so critical to the trade balance as compared to the impact by gold imports. The import duty on silver in India was also raised to 10% in August from 6%, but prices remain far apart: gold is about 60 times more expensive than silver in dollar terms. The value of silver imports in 2012 was $1.8 billion, whereas gold imports cost $52 billion. Even record shipments of silver are therefore unlikely to put any strain on the trade deficit, in contrast to the impact of gold, which is India’s second-biggest import item after oil. The impact is so small that they don’t bother to look at anything like that.

“There has been a massive improvement in silver imports and we will continue to see more. Investors are taking advantage of lower prices and the lack of restrictions on silver imports as of now,” said Harmesh Arora, director with the Bombay Bullion Association. According to the GFMS metals consultancy, India imported 4,073 tonnes of silver from January to August, more than double the 1,921 tonnes in the whole of 2012, when a jump in prices in the peak season hurt demand. The record high was 5,048 tonnes in 2008.

Low Silver Prices add attraction

Adding to India’s diverted attraction to silver, its prices have halved from their peak above $49 per ounce struck on April 28, 2011, while gold has shed 29% over the same period. Going forward, obviously from current low prices, the recovery will be sharper in silver compared to gold as silver would be in demand as an industrial metal too, apart from increased investment demand. For now, much of the silver flooding in is finding its way to rural areas, where industry officials expect a surge in disposable incomes after a bountiful monsoon boosted agricultural harvests. There is less gold available, so rural people will gradually move to silver. It will be a more of a default option than a conscious choice, nevertheless, triggering mammoth demand for silver bullion. Competition from platinum will be muted, since local prices are quite similar to gold, and far higher than silver. Gold and platinum fetch about 29,000 rupees per 10 grams while silver costs 500 rupees.

Gold investors confused on recent price movements

The correction in gold in September only adds to the negative sentiment toward the precious metal. The assumption from many market pundits is that gold is no longer attractive as an investment. With rising rates and continuing low inflation, U.S. investors believe they have a solid case for selling their holdings. However, this could be a premature assessment, causing these bears to potentially lose out on a lucrative position. One of the strongest drivers of the “Fear Trade” is real interest rates. Treasury investors continue to lose money, as the 5-year bill yields 1.41% and inflation sits at 1.5%. In a high interest rate environment, gold and silver lose their attraction as a store of value. But for that to happen, interest rates would need to continue rising above inflation, and inflation would need to remain low. I am sure; the official unemployment figure overstates the health of the economy. But based only on the official jobs market data, a limited housing recovery and regulations that have been slowing down the flow of money, the Fed may have no choice but to raise rates very gradually to keep stimulating the economy. Even though the U.S. has been reporting a low inflation number, things feel more expensive to many Americans. Disposable income has been growing less than inflation in recent years; perhaps that’s why many people feel “squeezed.”

Gold Demand from China

The Chinese market reopened after a week-long National Day holiday, but Hong Kong dealers said they were seeing just small buying interest. China’s net gold purchases from Hong Kong fell 5% in August from the previous month (116.385 tonnes in July), but were still healthy at 110.505 tonnes and above 100 tonnes for a fourth straight month. Gold prices had gained nearly 6 percent in August as geopolitical tensions in Syria mounted, burnishing the metal’s safe-haven appeal. The rise in prices could have prompted the small dip in Chinese imports month-on-month. Strong demand for gold jewelry and bars persisted in the world’s second-biggest bullion consumer. Carsten Fritsch, an analyst at Commerzbank said China’s consumption could stay above the 100 tonne mark in the coming months. China’s net gold imports from Hong Kong have totaled 744.818 tonnes for the first eight months of the year, while India’s purchases as of August stand at a little less than 600 tonnes. Many in the market expect China to overtake India as the biggest gold consumer. Chinese demand has been very strong this year, offsetting to an extent record outflows from gold-backed exchange-traded products. Though the Chinese Government itself does not publish import and export statistics for gold, the numbers from Hong Kong – a main conduit for gold into China – give the best picture of the country’s trade of the precious metal. These are the only official figures available and are a throwback to British bureaucracy and obsession with trade statistics dating back to when Hong Kong was a British colony. But this is perhaps not the whole picture as prior to 2010 gold imports through Hong Kong were virtually non existent. It does not seem likely that Hong Kong is the only import route for gold into China. China has also rapidly built up the world’s most active physical gold exchange and the second most active gold futures market in just a few short years. No surprise that the amount of physical gold traded at the Shanghai Gold Exchange and the Shanghai Futures Exchange, at times gets close to total global mine production. I think that China may actually even have far more than 3,000 tonnes in its reserves, as do a number of economists and gold market analysts worldwide, and is only waiting until it sees the time as right before announcing gold reserve details. Chinese banks that import gold also face a quota restriction imposed by the central bank. In a draft policy document issued last month, China’s central bank said it was planning to increase the number of firms allowed to import and export gold – a move that could further increase gold imports.

COMEX Gold Inventories Steady Overall With 40,000 Ounces Moved Out of Deliverable Category

By Jessescrossroadscafe

There were big adjustments in the registered (dealer) gold inventories at JPM and HSBC yesterday as a total of  over 40,000 ounces of gold bullion moved back to the customer storage category. In Scotia Mocatta 4,572 ounce of customer gold moved into the deliverable category.
Brinks received about 1,700 ounces of gold into its registered category which will be offered for delivery and Scotia also received 1,618 ounces into storage.  These were the only external transactions. So as of yesterday there was a total of 731,226 ounces of deliverable gold, and a total of 6,888,160 ounces of gold in all the COMEX warehouses.

And there are 48 times more claims for the deliverable gold than there is gold to deliver, at least at these prices.   They may dodge, bluff and finesse their way for some time, the audaciously clever ones that they are, but at last there will come a reckoning, as it comes for all.

Silver Bullion Demand rising globally

The Royal Canadian Mint last week reported a surge in revenue and profitability for the second quarter of 2013. Revenue increased by 93.8% to $1.05 billion and this represented the first time in the Mint’s history that quarterly revenue exceeded $1 billion. The strong results were driven by a sharp increase in bullion demand. There was a 144% jump in Gold Maple Leaf Sales over the same period last year and a 60% surge in the sale of Silver Maple Leaf coins to 6.4 million ounces from 4.0 million. Silver Maple sales look like they may reach 24 million ounces in 2013 which will beat the sales of 18.1 million in 2012 and possibly the 23.1 million record seen in 2011.

Perth Mint Gold and Silver Bullion Sales in Troy Ounces for 2013

Month Gold Silver
JAN 65,683.71 670,544.36
FEB 44,048.62 426,319.29
MAR 50,356.16 408,178.52
APR 111,505.06 1,102,465.96
MAY 86,983.54 587,454.82
JUN 47,047.83 588,630.13
JUL 56,488.25 697,247.39
AUG 30,430.10 691,258.63
SEP 68,488.06 961,977.07
Total YTD 561,031.33 6,134,076.17
 Data Source

Sales of the U.S. Mint’s popular American gold Eagle bullion coins fell to a six year low, while American Eagle silver bullion sales remained brisk.

The US Mint’s Monthly Sales of Silver for 2013:

Month Silver Ounces
JAN 7,498,000
FEB 3,368,500
MAR 3,356,500
APR 4,087,000
MAY 3,458,500
JUN 3,275,000
JUL 4,406,500
AUG 3,625,000
SEP 3,013,000
Till 7th Oct 672,000
TOTAL 36,760,000
Figures above are in Silver ounces.
Data source: U.S. Mint

The US Mint’s Annual Sales of Silver from 2001 till Oct 7, 2013:

Year Silver Ounces Monthly Avg.
 2001 8.827.500 735,625
2002 10,475,500 872,958
2003 9,153,500 762,791
2004 9,617,000 801,416
2005 8,405,000 700,416
2006 10,021,000 835,083
2007 9,887,000 823,916
2008 19,583,500 1,631,958
2009 28,766,500 2,397,208
2010 34,662,500 2,888,541
2011 39,868,500 3,322,375
2012 33,742,500 2,811,875
2013 36,760,000 4,048,459
Figures above are in Silver ounces.
Data source: U.S. Mint

Sales of silver in Oct till the 7th, 2013 have been 672,000 ounces.

The US Mint’s sales Silver to Gold ratio:

Month Gold Ounces Silver Ounces Ratio of Silver Oz bought per Gold Oz
JAN 150,000 7,498,000 49.98:1
FEB 80,500 3,368,500 41.84:1
MAR 62,000 3,356,500 54.13:1
APR 209,500 4,087,000 19.50:1
MAY 70,000 3,458,500 49.40:1
JUN 57,000 3,275,000 57.45:1
JUL 50,500 4,406,500 87.25:1
AUG 11,500 3,625,000 315.21:1
SEP 13,000 3,013,000 231.76:1
OCT 5,500 672,000 122.18:1
TOTAL 709,500 36,760,000 51.81:1
Figures above are in ounces and not in the number of coins sold.
Data source: U.S. Mint


As of September end, U.S. Mint silver coin sales are up 37% ytd, as store of value investors take advantage of the lowest prices since Q3-2010. The drop in silver prices since April has spurred more buyers to purchase coins, contrary to trends for both U.S. Mint gold coin sales and the historical correlation with silver prices. The divergence of silver coin sales and the metal price this year begs the question as to which one will follow the other as Q4 approaches. The answer might come in emerging market demand for silver especially in India. Silver demand is surging due to the Indian government’s capital controls and harsh tax treatment of gold and silver imports look set to reach a record in 2013. Silver continues to see strong store of value demand in India, the U.S. and elsewhere as buyers view the metal as cheap versus gold. The world has only dealt with the first part of the financial storm that hit the world in 2008 and is now sitting in the eye of the financial cyclone. Even though the Fed and Central Banks have been able to manipulate, control and divert interest away from the precious metals presently, the rear of the PRECIOUS METAL HURRICANE is still approaching. Gold and silver coins, either in your possession or in allocated storage, will continue to protect and grow the wealth of those with a long term outlook.

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