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This blog discusses The Perth Mint's bullion coins and bars, providing information about our latest designs, mintages, sales volumes and sell outs. On a broader front, we share relevant research and opinions for anyone interested in gold and silver bullion investing.

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LBMA Announces Precious Metals Forecast Winners

Topics [ gold prices silver prices spot price ]

IN THE NEWS

The London Bullion Market Association has announced the winners of its 2014 Precious Metals Forecast.

The aim of the LBMA Forecast is to predict the average, high and low price for gold, silver, platinum and palladium over the year ahead. The prediction closest to the average price wins (based on the average $ daily pm fixing price).

 

Frederic Panizzutti of MKS (Switzerland) SA took first prize for gold with a winning forecast of $1,262 against an actual average for the year of $1,267.

In silver, Rhona O’Connell (Thomson Reuters) and Suki Cooper (Barclays) shared the honours with a forecast of $19.00 against an actual average price for the year of $19.08.

Full details of the winners can be found on the LBMA website.

ASSOCIATED STORY: How Accurate Is The LBMA Precious Metals Forecast Survey?



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Investors Will Have To Work Harder

Topics [ invest in gold spot price ]

BLOG WATCH

Mineweb had two interviews yesterday in which two different analysts came to the same conclusion on the state of two different markets (gold and silver). Both saw increasing surpluses in the two metals, which meant increasing amounts of money needed to flow into the metal if they are to see prices increase.

By surplus, they are referring to (mine + scrap) supply is greater than (jewellery + industrial) demand. The difference is absorbed by investors. The chart below shows this difference for gold in tonnes on a quarterly basis.


Investor demand increased dramatically after the financial crisis in 2008.

Philip Klapwijk (GFMS) said that they were projecting “a fundamental surplus in the market which in dollar terms could be north of $130 billion” and a substantial increase in “the call on the market and the amount that needs to be committed to the market to clear this surplus”.

Philip feels that this is going to become unsustainable and unless “there is going to be a massive sea change in terms of those investors that are involved in this market and a massive broadening of participation, there will come a point where the usual suspects won't be enough to buy all this gold, and the price is going to fall.”

On a positive note he believes that speculative investors “are probably not as leveraged as they were at the end of the third quarter, and therefore the vulnerability of gold to sell off when the market is in risk-off mode is not as great as it was at times last year.”

David Jollie of Mitsui sees a similar situation in the silver market, with demand affected by a weak economy but mine supply up resulting in “a softer physical market than you have had before” which will require “a lot more effort from investors than they had to make last year in order to achieve the same highs.”

David “see[s] a medium term outlook which is not that negative for the price but in the short term there has to be some concern that the price might fall.”

Download today’s full Blog Watch (pdf 344kb) for more reviews, including:

COMEX WHAREHOUSE STOCKS

Blogger Jesse has a short piece on COMEX registered silver inventory dipping below 30 million ounces, which he sees as a “dangerous and volatile situation”. I’m not so sure.

GOLD AS A SAFE ASSET

FT Alphaville has a piece on an IMF Global Financial Stability Report. Chapter 3 of that report examines the roles of safe assets in the financial system. You’ll be glad to know that gold is included as a “safe asset”.



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How Are Perth Mint Gold And Silver Spot Rates Calculated?

Topics [ gold prices silver prices spot price ]

EDUCATION

We have had several people ask how The Perth Mint sets its US and Australian dollar precious metal spot rates.

Our spot prices are based off Reuters and other feeds we get from information providers as well as quotes direct from bullion banks. We then add a margin, which changes dynamically during the day depending on our view of what the real/executable spot market price is and the flow of buy and sell trades from our clients.

The reason I’ve used the phrases “based off” and “real/executable spot market price” is because precious metal is not traded exclusively on a public and regulated exchange. Precious metal markets operate much like the internet – it is a network of dealers (some large, some small), independently trading with each other, and it is the sum of those individual trades that makes up the “spot market”.

Precious metals are traded on public exchange, such as the COMEX futures market and Exchange Traded Funds on stock exchanges, but these are only a small part of the worldwide 24 hour a day trading that occurs.

Precious metal dealers often use Reuters or Bloomberg. However the spot price displayed on these information services (usually under the code XAU) is just an indicator of where the market is. This spot price is updated by the bullion desks of the big banks and is, in effect, a bulletin board or forum where these banks can publish their prices in the hope other dealers will call them up to do a trade. Sort of like an advertisement. Unlike a stock market, it is not a commitment to deal at those prices, but most times you can. However there are many times, especially when the market is moving quickly, when the dealers don’t have time to update their quotes and so when you ring them up, they say “Sorry, Reuters off the market, my current price is $5 below the screen”.

As a result, when you call a dealer for a price, they themselves cannot really know exactly where the market is. As a result they add a margin to cover themselves if the Reuters price was not right. Generally this margin is small because dealers are in constant contact with each other, doing deals, talking and exchanging information on what they are seeing in the market and so have a sense of whether Reuter’s price is accurate.

The dealer also has to consider that by the time they get off the phone with you and then call a wholesale dealer the market may have moved, so they also include an amount into the margin to cover themselves if the market moves against them in between the phone calls. How much they add depends on how volatile the price has been, and this often changes during the day.

Sometimes if your deal is big enough and the market volatile, they’ll get another trader on their desk to call a bank and get a firm price before they quote to you. If you’re lucky enough to have that much money, give the dealer your answer quickly, because the bullion bank dealer on the other end of the phone isn’t going to want to sit on their quote for too long because he/she has got to trade it as well.

Also included in the margin is an amount covering the costs of running a trading desk, for example, the time spent talking to you, to do the other side of the trade with the bank, to wire funds, bank fees etc.

Often when clients ring up to buy and we quote them a price, they say “Well, where can I get what the spot price is?” so they could work out if our price was “fair”. Our answer is usually “It doesn’t exist. You could spend a few thousand getting a live Reuters data feed, but even that is just indicative.” Being used to the comforts of a stock market where everyone knows what the price is, many don’t like that answer and think we are pulling a shifty on them. Hopefully this article explains why that isn’t the case.

If you want to know if you’re getting a fair price, all you can do is what we do, which is to ring around to see who is offering the best price at that time. You’re now part of the precious metal “network” of traders.

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