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GFMS Offers Market Updates on Gold, Platinum, and Silver

Gold   •   Platinum   •   Silver

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In 2016, the price ofgold averaged $1,250 an ounce, a 7 percent increase from 2015, reports the GFMS Gold Survey 2017. The higher price of gold didn’t help demand for the metal, which saw an 18 percent decline, most of which can be attributed to a 21 percent drop in jewelry fabrication demand. The bulk of this drop can be traced to India, where jewelry sales sank 38 percent to a record low of 454.4 tons. In March, the Indian government placed an excise tax of 1 percent on gold jewelry in an effort to bring greater transparency to the trade and clamp down on the sale of smuggled gold. In addition, a poor monsoon for the third consecutive year helped negatively affect the incomes of nearly one-third of the country’s jewelry consumers.

China also saw a significant drop in jewelry demand, as higher gold prices and poor economic conditions weighed on consumer sentiment. As a result, Chinese retailers have begun reallocating their product mix, focusing more on higher margin products and less on pure gold sales.

While the GFMS forecasts gold prices to remain somewhat volatile this year, it expects the Indian market to regain its footing. The GFMS predicts an average price of $1,259 for the year, and remains hopeful about the metal’s long-term price prognosis.

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According to the GFMS Platinum GroupMetals Survey 2017, platinum was the worst performing precious metal in 2016, with its price stumbling 6 percent to average $988.76, falling below $1,000 for the first time since 2005. The price was initially dragged down by turmoil in the global equity markets, and though it recovered to rise above $1,000 during the year, the price again fell back after end-of-the-year discussions regarding potential interest rate rises in the United States.

Despite the lower price, global platinum jewelry demand declined 12 percent to 2.18 million ounces. The fall is largely attributed to declines in demand in North America and China, which saw 10 percent and 12 percent falls, respectively. In China, platinum’s decline is believed to be the result of weaker economic conditions as well as the metal losing market share to 18k yellow gold. For North American consumers, it was a matter of jewelry price stickers not reflecting platinum’s lower cost to gold. Because platinum is a denser metal, a platinum piece can be 40 percent heavier than its gold counterpart, and thus more expensive for consumers.

Platinum mine production also fell 2 percent to 6.05 million ounces, driven primarily by lower production at South Africa’s five largest operations because of work stoppages and mine suspensions. GFMS believes that mine production will continue to be hindered this year due to a lack of investment in earlier years. As a result, it forecasts the market to have a small fundamental deficit for the year.

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Last year saw thefirst increase in the average price of silver since 2011. The price of the metal rose 9.3 percent to average $17.14 an ounce for the year. According to the GFMS World Silver Survey 2017, this rise was aided by a turnaround in investor interest in Exchange Traded Funds, political uncertainty, and a metal deficit of 147.5 million ounces.

Economic conditions and silver’s higher price helped drag down jewelry fabrication, which fell 9 percent to 207 million ounces, a four-year low. GFMS attributes much of the falling demand to the developing world, most notably China and India. In India, it is believed that the introduction of an excise duty on gold jewelry is having a cascading effect across the jewelry industry, helping lead to a 14 percent drop in jewelry fabrication. In North America, the U.S. was a bright spot for demand, which rose 12 percent last year, though the gains were offset by 14 percent and 10 percent falls in Mexico and Canada.

Global mine production fell 0.6 percent to 885.8 million ounces, and, despite higher silver prices, global scrap fell 1 percent to 139.7 million ounces, the lowest volume since 1996. Much of the decline in scrap is attributed to China, where a sluggish economy and the metal’s rising price led to a stockpiling of the metal. The GFMS feels that many Chinese are not optimistic about silver’s long-term price, and notes that higher prices could lead to further stockpiling.

A division of Thomson Reuters, GFMS are metals market analysts offering insights on metal news, market development, and economic events impacting metals markets.

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