What Alchemists Think about the Impact of Changes in Automotive Industry on Precious Metals? / Commodities / Gold & Silver 2019

The new Alchemist is out. What can we learn from thelatest publication of the LBMA? We invite you to read our today’s article andfind out!

OesterreichischeNationalbank (OenB) and Gold

In the previous edition of the Gold News Monitor, we havealready analyzed one article from the newest Alchemist about the gold outlookfor 2019. Today, we would like to return to the publication and examine theremaining ones, which are no less interesting.

The previous edition of LBMA’s Alchemist focused onthe link between Banque de France and gold. The most recent issue (no. 92)describes the gold strategy of the Austrian central bank. We can learn, forexample, that since 2007, OeNB’s gold holdings have held constant at 280 tons, currently representing about 48 percent ofthe bank’s foreign exchange reserves.

Interestingly, in line with the recent internationaltrends in the management of gold reserves, the OenB changed its gold storage policy, shifting it towards domestic storage.By the end of 2014, OeNB held around 80 percent of its gold reserves in theUnited Kingdom, around 17 percent in Austria and around 3 percent inSwitzerland. According to the new gold storage policy adopted five yearsago,  by 2020 at the latest, half ofOeNB’s total gold reserves (280 tons), are to be stored in Austria, 30 percentof them are to remain in the UK, while 20 percent are to be kept inSwitzerland.

The shift reflects the central bank’s response to asignificant increase in public interest in OeNB’s management of its goldreserves. The rise in people’s awarenessabout the importance of gold reserves and in central banks’ transparency shouldbe welcomed by all gold-lovers.

InsidePerspective on the Global Financial Crisis

Another interesting article is “Inside Perspective on the 2008 Financial Crisis andthe Lessons Learned” by Mike Silva, who served as TimGeithner’s (and later William Dudley’s ) chief of staff at the New York Fedduring the GreatRecession. The author clearly explains whythe Fed rescued Bear Steans and AIG, but not LehmanBrothers. The issue was simple: the latterdid not have adequate collateral for the Fed to lendagainst, as, according to the Federal Reserve Act, the US central bank couldlend to a non-bank if it determined that it was “secured to its satisfaction”.

Silva believes that the next financial crisis islikely to happen sooner rather than later “because of the large number ofpossible crisis triggers that are currently being squeezed” (think about Brexit, nearlyinverted yield curve or recordleveraged lending). This is good newsfor gold. However, the author adds that because of the improved capital,liquidity and risk management, “the next financial crisis is unlikely to resultin a banking crisis”. This is not so good news for gold, as the yellow metal shines the most duringrecessions which are accompanied by a banking crisis.

Changes inthe Automotive Sector and Their Impact on PGM Usage

The third article we would like to analyze is “Future Propulsion System Mix and Its Impact onAutomotive PGM Usage” by Rahul Mital, the GlobalTechnical Specialist for Diesel Aftertreatment at General Motors. The authorexamines the impact of the automotive propulsion system mix on precious metalsusage in the coming years. According to him, 86 percent of passenger cars arestill expected to have an IC engine and, hence, a catalytic converter by 2030.This implies no drop in demand forconverters, and the usage of the precious metals, for the next 10 years, asthe lower percentage share will be counteracted by the higher car sales. Infact, we could see a marginal increasefrom now till 2030, as lower emission levels would mean that the converterswill need more precious metals to achievethose more stringent emission levels. Indeed, Amanda Josey, in a complementingarticle (World Emissions Standards: Opportunities & Risks for PGMs inAutomotive Catalysis), projects a 3-percent increase in demand for platinum-group metals until2027 driven by regulation.

Centenary ofLondon Gold Price

Last but not least, the newest Alchemist notes thatthis year marks the centenary of thefirst gold London goldfix or what is now known as the LBMA Gold Price.The first fixing took place on 12th of September 1919, and the priceof gold was settled at £4 18 s 9d by the five founding members: NM Rothschild& Sons (chair), Mocatta & Goldsmid, Pixley & Abell, Samuel Montagu& Co. and Sharps Wilkins. Over the years, the London Fix has evolved andmodernized. One of the most significant changes occurred in 1968, when theprice changed from sterling to dollars and took place twice a day. Today, itstill remains the international benchmark price for the gold market used asreference price by miners, refiners, central banks, investors, traders andfabricators around the globe. Indeed, as we pointed out many times, the international price of gold is set inthe London goldmarket and in Comex, not in India or China, despitetheir large retail markets.

Thank you.

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Arkadiusz Sieron

Sunshine Profits‘ MarketOverview Editor

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