Metals Market Report Archive

The Mike Fuljenz Metals Market Report

May 2024 - Week 5 Edition

Gold ETF Flows Finally Turn Positive: “Better Late Than Never”

As usual, well after gold made its major bull market surge, mainstream Wall Street traders and investors are finally getting on board.  According to the World Gold Council (WGC), gold-backed ETFs and similar products finally saw net buying in both March and April of 2024 after years of net selling. Gold-backed ETF traffic generally reflects Wall Street’s short-term sentiment for holding gold, since they are easy to buy or sell without shipping, storing or insuring the gold.

North American gold funds saw a net $124 million inflow in April. At the end of April, gold ETF assets under management (AUM) in North America rose to $117 billion, the highest level since April 2022, due mostly to the increase in gold’s price in those two years. Even with those recent gains, Asian investors have been “smarter for longer,” with 14 straight months of net gold ETF fund inflows. In China, gold ETFs not only saw record inflows in April (up $1 billion) but they also reached their highest AUM ever, up 36% (+$2 billion) in the first four months of 2024.

This positive trend has increased so far in May, according to the WGC, which says that global gold physically-backed gold ETF flows saw net buying of $1 billion in the week of May 10-14 – the largest weekly inflow since October of 2023. Echoing our “better late than never” gold buying theory for Wall Street investors, analyst Rhona O’Connell, of the financial advisory firm StoneX, was quoted by CNBC last week as saying, “Gold’s key role is to offset risk, whether financial, geopolitical or volatility. That is not new, but … more and more investors, including a lot of mainstream investors, like macro funds and the like, have missed a part of that rally, and are convinced by the case for gold and therefore want to participate.” Yes, better later than never.

Silver’s Gains Far Outpaced Gold’s Gains So Far in 2024

Silver trailed gold’s rise in early 2024 but then silver took off like a rocket in April and May, especially in the second half of May. Silver was trading at $24.80 an ounce at the end of March, $26.39 at the end of April and opened at $28.11 on May 14 and is $32 now.  There hasn’t been much commentary on this unusual switch in precious metals leadership but the main cause seems to be President Joe Biden’s massive tariff increases on Chinese electronic exports to America, announced on May 14. After the President’s sky-high tariff announcement, silver leaped from $28 to $31 in three days and has remained above $31 ever since then, closing on May 28 at around $32.

On May 14, the Biden Administration announced tariffs on Chinese exports of solar energy panels would double from 25% to 50% and tariffs on Chinese electric vehicles (EVs) would quadruple, from 25% to 100% – like paying double the asking price off the top.  For solar cells, silver helps conduct electricity when light strikes the photovoltaic cell. A typical solar panel contains up to 20 grams of silver (0.64 Troy oz). For EVs, nearly every electrical connection in a vehicle contains silver and over 55 million ounces of silver are used each year in motor vehicles. EVs are expected to account for 49% of silver use in automobiles by 2040 and the Biden lawmakers not only underwrite and encourage EVs but, in some cases, mandate more EVs.

Even without recent tariffs, silver’s industrial demand rose 9% in 2023, according to the Silver Institute. Global silver demand (at the start of 2024) was expected to rise by 2% while total supply was estimated to shrink by 1%, resulting in a deficit of 215.3 million ounces of silver in 2024, the fourth straight annual supply/demand deficit and 17% above the 184.3-million-ounce deficit in 2023, according to the Silver Institute. Over the last three full years (2021-23), the Silver Institute estimates there was a cumulative deficit of 474 million ounces, equivalent to 14,743 metric tons of silver. If you add this year’s estimated 215 million ounces (6,700 tons), that brings the cumulative four-year deficit to 21,443 tons of silver, which is the main reason why silver has doubled from an April 2000 low of $15 to over $30 per ounce now. More recently, since April 1, silver is up 30% vs. +6.3% for gold and the spread is 22% vs. 2.9% since May 1.

Next week, I’ll bring you a special report on coin “toning” from both natural and artificial sources: A coin’s tone can help (or hurt) the market price. Toning can be caused by a coin’s packaging or handling and can create unique coloration. This is an important subject when discussing rare coins and I will bring you my experience from a lifetime of coin grading and viewing many variations of gorgeous tone coloration in rare coins.

 

Silver and Gold Making More Market Moves

Silver rose strongly over the Memorial Day weekend, up nearly $2 per ounce on the futures market, from $30.33 on Friday, May 24, to $32.24 (+6.3%) on Tuesday, May 28. Gold was up only $5 (+0.2%) at the same time, continuing silver’s superior performance during May.  So far in May, silver is up 22% vs. less than 3% for gold, reflecting (mostly) silver’s usage in industrial applications, magnified by the new ultra-high tariffs on Chinese industrial exports to America.

On Wednesday, May 29, gold dipped somewhat in anticipation of the Fed’s favorite inflation indicator (the PCE index) coming out Friday, but silver retained its $32 price, not falling at all.  The U.S. Dollar Index fell 0.5% last week, but it has revived this week and is up 3.5% in 2024, meaning gold and silver are up that much more in terms of most other currencies in 2024.

 

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