Gold rebounds from lows

August 30, 2018
Pat Heller

From June 14, 2018, when the price of gold closed on the New York COMEX at $1,304 and silver finished at $17.22, their prices fell all the way down to $1,187 and $14.53, respectively, at the COMEX close on Aug. 23. The price of platinum over the same period dropped from $909 to $781.

Those were declines of 9 percent for gold, 15.6 percent for silver, and 14.1 percent for platinum.
Over that same time period, the value of the Chinese yuan fell 6.9 percent against the U.S. dollar. Coincidence? I think not.

Then, late Friday last week, the Bank of China signaled that it was not comfortable with further depreciation in the value of the yuan. That was all it took for precious metals and the yuan to turn around and rise.
As I write this Wednesday morning, gold is up 1.6 percent, silver jumped 1.4 percent, and platinum rose 1.5 percent from last Thursday’s COMEX closes. At the same time, the yuan has appreciated 0.8 percent to the U.S. dollar. Again, I don’t think that is a coincidence.

When you have a significant drop in precious metals prices over a relatively short time frame such as this 10-week period, there will invariably come a point where some event triggers at least a partial rebound.
I expect that this partial rebound will continue, with two caveats. First, prices will never move in a straight line. Second, the price recovery will not necessarily bring prices back up to their June 14 levels within 10 weeks from Aug. 23. Still, overall, I suspect that precious metals have passed their short-term bottom.

As prices of precious metals fell, there was a shift in the U.S. market of less liquidation by those who held physical coins and ingots along with an increase in demand to purchase them. Wholesale inventories have tightened, with some short delivery delays happening.

As a result, some of the bargain-basement premiums that the public has enjoyed for the last few months are now higher. In particular, premium levels are up for back-date U.S. gold American Eagles and Canada gold Maple Leaves, as well as for U.S. 90 percent silver coins.

Of particular note is the rise in retail premiums for U.S. 90 percent silver coins. In my years of watching the markets, when these coins could be purchased retail for a premium of 2 percent or less above their metal value, that meant that their wholesale price was enough below silver value that refiners could profitably melt them and turn them into pure silver ingots and other products. Effectively, this would increase the supply of physical silver on the markets. Now that retail premiums are higher than 2 percent, this will reduce the supplies of physical silver available for investors and industrial users. Thus, it is more likely that silver’s price could rebound by a greater percentage than for gold and platinum in the coming weeks.

The greater volatility of silver prices compared to gold is consistent with past trading history. The value of the physical silver market is tiny compared to gold, which magnifies any price fluctuations, up or down, that do occur. When prices are rising, silver just about always outperforms gold. When prices are generally falling, silver’s price similarly drops a greater percentage than gold.