Breaking news: The Krugerrand is going silver! Also, the new Alchemist is out. What can we learn from the latest publication of the LBMA? We invite you to read our today’s article and find out!
Silver Krugerrand Is Available Now
You can always count on the LBMA’s Alchemist. There is something interesting in every issue. The latest release is not an exception. Let’s start with the breaking news for all precious metal lovers. This month, the silver bullion Krugerrand has been launched! It’s a really big development, as the Krugerrand is an iconic global brand. The gold Krugerrand was launched in 1967 as the first modern gold bullion coin. It enjoyed great interest, with the peak in 1978 when over 6 million ounces of Krugerrands were sold. In 2016, the gold Krugerrand regained its position as the world’s top-selling gold bullion coin. It’s not surprising: with over 60 million Krugerrands sold since launch, it is the most liquid gold bullion coin.
Now, the gold Krugerrand will have a silver companion. The South African Reserve Bank has just launched the silver bullion Krugerrand. It is a real milestone for the precious metals market, as it is the first new bullion product being delivered under the Krugerrand brand since the launch of fractional gold Krugerrands in 1980. The coin will weigh 31.107 grams with a diameter of 38.725 millimeters and purity exceeding 99.9%. The new silver coins will bear the same iconic design as the gold Krugerrands, and they will be available in tubes of 25 or in monster boxes containing 500 coins.
The launch may spur some interest in silver as an investment, increasing demand for silver bullion coins (although this could be just a shift from other brands). However, it shouldn’t significantly alter the price of silver, which is determined in markets in London and New York. The coins are sold at the international price plus some margin.
Will Auto Sector Electrification Boost Demand for Silver?
There is one more article about silver. Rhona O’Connell discusses the impact of the auto sector electrification in the silver market (we have analyzed the impact of the revolution in the automotive industry on the precious metal market in the August 2017 edition of the Market Overview). She argues that the electrification of the vehicle fleet should boost the demand for silver. This is because silver has the highest electrical conductivity of any metal. Moreover, solar cells will be an integral part of some electric-cars, which would additionally support the demand for silver. The author, thus, expects that the automotive silver usage is likely to grow almost 3,000 tons by 2040.
Update on Gold, Real Interest Rates and U.S. Dollar
Last but not least, Martin Murenbeeld provides us with an update on gold, real interest rates, and the U.S. dollar. He correctly points out that gold is strongly correlated with real interest rates and the greenback. However, the correlation of gold with the U.S. 10-year TIPS yield (Treasury Inflation Protected Securities) has declined significantly in the recent quarters. Hence, he expects that strong negative relationship to reassert itself. We have also been indicating such danger for months. But Murenbeeld decided to quantify the risk. According to his results, a 100 basis point rise in the 10-year TIPS yield over a 13-week period will knock gold back by $173.38 over the same period (while a 1 point rise in the dollar index will knock gold back $10.05). You have been warned!
However, he also notes that the price of gold plunged in 2013-2014 by more than the 160 basis point increase in the TIPS yield warranted. Therefore, it might be the case that gold has already discounted the current Fed tightening – at least partially – along with some rises in real interest rates.
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Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.
Arkadiusz Sieron, Ph.D.
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
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