How Gold Scrap Plays A Role In Month’s Precious Metal Price Drops

The big story over the last month, of course, has been the gold price crash. After having peaked over $1,600 per ounce only a short while ago, we’re back to $1,200/oz levels. But that’s not the only story:

Every single price point in the index dropped. This is the second straight month of the the monthly Global Precious Metals MMI® registering a value lower than our January 2012 baseline of 100 - the price index clocked in at 88 in July, a decrease of 10.2 percent from 98 in June.

Over half of the gold mining industry producers are losing money at current levels. The gold price would have to drop to $1,000 an ounce for jewelry demand to rise, and scrap supply to fall sufficiently for there to be a significant enough change in fundamentals to reverse the price.

The only plausible alternative is a shift in the Fed’s position on tailing off quantitative easing, which seems unlikely given recent announcements.
PGM prices are also in the dumps…

According to ETF Securities’ latest report, “platinum and palladium have been affected more by the recent liquidity squeeze and resultant growth fears in China…we believe the sell-off is overdone. We expect China liquidity conditions will ease and growth fears will dissipate over the course of the year, removing this hindrance to platinum and palladium price performance.”

On our monthly price index, Japanese PGMs were particularly hit hard.

Key Price Index Drivers
Following a 18.4 percent decline, the Japanese silver price finished the month decimated. Japanese palladium bar prices fell 16.6 percent after rising the previous month. After also risen the previous month, Japanese gold bullion prices dropped 15.0 percent. Chinese silver prices dropped by 12.7 percent this month. Chinese palladium bar prices fell 12.5 percent after rising the previous month. Japanese platinum bar prices dropped 12.5 percent. US palladium bar prices fell 12.0 percent.

An 11.7 percent decline for U.S. silver left the price lower. The price of U.S. gold bullion closed the month after dropping 11.0 percent. Chinese gold bullion prices fell 10.5 percent. After falling 8.7 percent, Chinese platinum bar finished up down. A 7.9 percent drop over the past month left U.S. platinum bar flailing. After rising the previous month, Indian silver prices dropped 7.5 percent.

Interestingly, the Indian gold bullion price was the smallest loser, falling only 3.7 percent.

The Global Precious Metals MMI® collects and weights 14 global precious metal price points to provide a unique view into precious metal price trends over a 30-day period.