Weekly markets round-up for StoneX Bullion

Welcome to a very brief overview of the recent performance in the markets. The essentials are captured in the table below and each week we will show a chart of interest.

The Coronavirus is showing no signs of easing and, quite the reverse, the contagion is spreading overseas. The Chinese Government is sparing no effort in trying to control and contain the problem and the Shanghai authorities have extended the Lunar New Year Holiday for a further week as there is a widespread travel ban. It is also injecting substantial amounts of liquidity into the financial system in an effort to keep the economy from sliding.

The base metals are under heavy downward pressure as a result, with economists expecting a contraction of at least 10% in China’s economic growth rate this year, and some observers are even suggesting that this year’s growth could drop to between 4% and 5%. The gold price has held up while all other metals have been sliding and silver has been caught in two minds. While it has not fallen by as much as the base sector, due to its association with gold, the gold:silver ratio has widened. This is unusual when gold is in a bull market as silver’s higher volatility normally means that when gold rises silver rises faster and the ratio narrows. The uncertainty overhanging the markets this time is keeping silver under some pressure and, while it has challenged $18 a number of times it has, for now at least, been repelled.

At approximately 6,300 tonnes China currently accounts for approximately 19% of world silver demand and local offtake has been broadly steady over the past three years. Industrial demand has been growing, notably in the electrical and electronics sector with steady growth in the solar cell sector despite the removal of government subsidies. China’s Purchasing Managers’ index averaged just below 50 last year (50 is neutral, below 50 implies contraction) and we already expected this to be reduced this year before the virus broke out. The global market was expected to be broadly in balance in 2020; now it looks likely to tip into a surplus, but, subject of course to how the virus plays out, it is not likely to be heavily imbalanced.

Thought for the week

China’s gold bar and coin demand dropped from 308t in 2018 to 211t in 2019, 27% of world coin demand (World Gold Council)

Chart for the week

China; Purchasing Managers’ index, January 2005 to January 2020