LME Asia Week 2018: Precious metals not ready for the vault

Gold prices on the London Metal Exchange (LME) have been trending downward in May 2018, but panelists at the LME Asia Week 2018 Seminar, which took place in Hong Kong in mid-May, see reasons why the price may rebound by year-end.

Interest in the stock market (in the U.S.) and the property market (in China and other parts of the world) has helped dampen some investors’ interest in gold, according to Sunile Kashyap of the Bank of Nova Scotia. “I think there is more interest in other asset groups [so] money has been flowing out of gold.”

Mark To of Hong Kong-based Wing Fung Financial Group and Rhona O’Connell of Thomson Reuters GFMS pointed to geopolitical events and monetary policies triggering inflation as reasons why people may seek gold as a safe haven investment by the end of 2018.

O’Connell said the United States tax law changes taking effect in 2018 have added an estimated $1.3 trillion to the federal budget deficit, “which could support gold,” she commented.

The metal never completely loses its safe haven status, with O’Connell remarking that some 500 tons of gold were estimated to have been smuggled out of China in 2017, as wealthy people there seek to diversity their holdings both by asset class and geographically.

Regarding where the price of gold will head, “I think we’re looking for gold [to be] trading higher by year-end,” said Amar Singh of JPMorgan Chase. He said inflation figures will act as “the first trigger” while “wealth managers [are] quietly waiting” to reinvest in gold.

O’Connell referred to silver as potentially undervalued, and Singh commented that the metal had survived a fundamental market change with the phasing out of silver-coated films in the photo industry. Singh said the jewelry market (particularly in India) and the solar panel market now underpin silver’s physical demand side.

Solar panels and electric vehicles (EVs) should both provide steady to strong demand for silver at a time when supply “has slowed down,” according to Singh. “We believe silver is close to its low level [price] and will move up,” he added.

The downward spiral of the diesel engine in passenger cars has had a profound effect on the platinum market, since it is used in diesel catalytic converters. O’Connell said China’s demand for trucks and heavy equipment is providing some support to platinum pricing, but not enough to make up for Europe turning its back on diesel passenger vehicles. She said at its peak (before the Volkswagen scandal), the European auto market was accounting for 40 percent of global platinum demand.

The price of palladium, which is used in gasoline engine converters, has not been likewise affected. Strong palladium pricing also has been buoyed by output bottlenecks for palladium ingot makers, most of whom are located in either Russia or South Africa. Singh referred to each of those nations as “going through difficult times,” and thus not attracting full levels of investment that might boost ingot-making capacity and output.

The LME Asia Week 2018 Seminar was Thursday, May 17, at the Hong Kong Convention and Exhibition Centre.