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REPORT ON THE GLOBAL PRECIOUS METALS MARKET FOR JULY AND AUGUST 2018

During the vacations, gold recorded its lowest level. The price of gold equal to 1,160 USD per ounce has been the lowest over the last year and half. The main reason for the decline of gold is the strengthening dollar which is gaining strength thanks to increasing of rates by the US central bank. Low prices aroused interest of investors and the Perth Mint Refinery reported an increase in sales of gold ingots and coins twice as much compared to the previous year.

 

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  Gold Silver Platinum Palladium
Highest price USD/oz
1,266.00
16.22
859.10
988.30
Date 09-07-2018 09-07-2018 09-07-2018 31-08-2018
Lowest price USD/oz 1,160.80 14.34 754.10 829.40
Date 15-08-2018 15-08-2018
15-08-2018
15-08-2018
 
3 september 2018, Prague – The precious metals observed during the summer holidays were identical and all of them reached their bottom at the same day, i.e. on 15 August. If it was not for palladium, maximum prices could be achieved at the same day, on 9 July. However, the palladium reached its highest price at the end of August. It was caused mainly by a lack of this metal due to a failure of the biggest manufacturer – Russian company Norilsk Nickel, as well as due to stable demand from the automotive industry with diesel engines being replaced by petrol engines. This development leads to the fact that the difference between the price of platinum and palladium has been the highest since 2001 and the very price of platinum has been the lowest for the last 14 years
 
Nowadays, the gold records its lows as well. However, it is not as dramatic as in the case of platinum, though, the price of 1,160 USD per ounce is the lowest one in the past year-and-a-half. In mid-August, the gold briefly broke the psychological barrier of 1,200 USD per ounce and fell down to 1,160 USD. Though, it did not take so long and it returned back to the price of 1,200 USD. However, the low price of gold attracts interest of investors. The Australian Perth Mint announced record sales of gold coins and ingots for August. Annually, their sales grew nearly twice as much.
 
The main reason of gold decline is the strengthening dollar. So called the U. S. dollar index, which monitors the value of the USD compared to other important currencies, is moving around 95 points during the last month. The strengthening of dollar is caused mainly by increasing of interest rates by FED. However, this strengthening may not last long. The FED is likely to increase its interest rates twice by the end of the year as they announced, and if they continue at the same pace in 2019, it‘s up in the air. We keep on repeating that the strong dollar is not good for American export firms. They will have a difficult time as a result of beginning trade wars among USA and China and Europe and if is followed by the constantly strengthening dollar, it can be the final nail in the coffin for some of them. Therefore, we expect that at the end of the year, FED will announce that the increasing of interest rates will not be as often as it was this year. 
 
Nowadays, the price of gold is under pressure thanks to the fact that US stock markets keep on reaching their highs. In August, the limit of 3,452 days with no correction of stock index S&P 500 greater than 20% was exceeded and it became the biggest bull market in the history. However, neither tree nor market grows to the sky. The correction will surely come, the question is when and how big it will be. Since the prices of shares have grown very high since the financial crisis, we can suppose that the correction will be relatively strong, and the longer the shares grow, the bigger and more painful the slump may be. 
 
The strong dollar and continuously growing prices of shares are the reason why the gold responded so weakly to the financial crisis regarding Turkey. Emerging markets such as Turkey or Latin America may be the first victims of strong dollar since they will not be able to pay their debts in dollars as a result of increasing interests. The outflow of money from emerging markets where investors – under zero interest rates of developed countries – had been searching for at least some appreciation may have its share in problems. At this moment, it is offered by the safer USD.
 
Problems of these economies can develop into a global problem as we can see in Turkey these days. Italian banks, which had been buying Turkish debts in the past, can loose from the devaluation of the Turkish lira. This currency lost 40% in one weekend. The only piece of luck the Turks have is that they are used to such slumps of their currency and they keep a part of their savings in gold, be it in the form of jewellery or investment bars. Unfortunately, ordinary people in Venezuela are not so lucky since its economy is collapsing and inflation according to IMF estimates will reach astronomical million percent by the end of the year. However, the president Nicolás Maduro wants to solve the hyperinflation by selling small ingots of gold to the population, though, the most experts think that it is too late for this step and that it will not save Venezuela.  

 

Libor Křapka
Chief Executive Officer of IBIS InGold®, a. s.