Engineering & Mining Journal

AUG 2017

Engineering and Mining Journal - Whether the market is copper, gold, nickel, iron ore, lead/zinc, PGM, diamonds or other commodities, E&MJ takes the lead in projecting trends, following development and reporting on the most efficient operating pr

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96 E&MJ • AUGUST 2017 MARKETS Gold demand in the second quarter of 2017 was 953.4 metric tons (mt), 10% lower than 2016, while demand for the fi rst half slowed 14% to 2,003.8 mt, according to Gold Demand Trends Q2 2017, published by the World Gold Coun- cil. These year-on-year comparisons were affected by record 2016 infl ows into exchange traded funds (ETFs). Demand from this sector slowed dramatically after last year's surge in the fi rst half. Central bank net purchases of 176.7 mt were also slightly lower in the fi rst half (-3%). By contrast, bar and coin investment im- proved, as did jewelry demand. Investors continued to buy gold-backed ETFs in Q2. By the end of June, holdings of ETFs had reached 2,313 mt (worth $92.4 billion), the highest month-end total since October last year. Holdings for the fi rst half were up by 167.9 mt. And while this pales in comparison with last year's record growth, it nonetheless signals a continued interest in gold investment among institu- tional investors, according to the report. After 10 months of unhindered in- fl ows in 2016, investment in gold-backed ETFs during the fi rst half of 2017 have been rather more erratic. Three factors infl uenced investor attitudes toward gold- backed ETFs: monetary policy "normal- ization," the gold price and event risk. The prospect of continued monetary tightening dampened ETF demand. Ris- ing interest rates are usually interpreted as being negative for gold. But the Federal Reserve continues to telegraph its plans for monetary policy clearly, market expec- tations of a third U.S. rate hike have sub- sequently been pushed out to Q1 2018, relieving some pressure on gold prices. The gold price rose by 8% during the fi rst half of 2017, building on the 8% gains seen during 2016. This led to some investors taking a more cautious ap- proach, reluctant to build positions after a strong price move. Others used it as an opportunity to take profi ts. Although low- er prices may encourage fresh buying, an- ecdotal reports suggested that investment in the second quarter was not generally driven by investors' expectations of strong near-term capital appreciation. Event risk, particularly surrounding geo- political tension, remained a key driver of demand for ETFs. European investors dom- inate the H1 story. ETFs listed in the region grew by 128 mt in the fi rst half of 2017, absorbing 76% of net global infl ows. Jewelry demand for the fi rst half of 2017 recovered but remained below 1,000 mt. India drove global second quarter jew- elry demand growth almost single-handed- ly. Demand shot up to 126.7 mt compared with just 89.8 mt in Q2 2016. The strong recovery had been widely expected after exceptional import fi gures were reported, hitting an all-time high of 104.6 mt in May as the market stockpiled gold ahead of the June GST rate announcement. Bar and coin demand in Q2 rose 13% compared to the same period last year. The H1 performance was strong, too, with demand up 11%. Although encouraging to see demand bounce, the fi gures are fl attered somewhat by exceptionally weak demand in H1 2016. Gold Demand Decreases in H1 2017 Gold and silver prices provided by KITCO Bullion dealers ( Platinum group metals prices provided by Johnson Matthey ( Non-ferrous base and minor metal prices provided by London Metal Exchange ( Iron ore prices prices provided by Platts Iron Ore Index. Currency exchange rates were provided by (August 1, 2017) Precious Metals ($/oz) Base Metals ($/mt) Minor Metals ($/mt) Exchange Rates (U.S.$ Equivalent) Gold $1,268.20 Aluminum $1,887.00 Molybdenum $16,000 Euro (€) 1.185 Silver $16.69 Copper $6,300.50 Cobalt $57,500 U.K. (£) 1.322 Platinum $945.00 Lead $2,299.00 Canada ($) 0.795 Palladium $898.00 Nickel $10,155.00 Iron Ore ($/dmt) Australia ($) 0.796 Rhodium $990.00 Tin $20,700.00 Fe CFR China $72.06 South Africa (Rand) 0.076 Ruthenium $65.00 Zinc $2,769.50 China (¥) 0.149

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