Another bad week for the gold price without a single day of rising prices, short covering, etc; palladium is the hands-down winner of last week’s proceedings.
Gold: $1360.00 – down $88.00 from last week
The price for gold is trading now at a discount of $95 to platinum.
There is relentless selling pressure and that is not simply explained by ongoing, but very much slower disinvestments from ETF holdings. The general trading atmosphere is sufficiently negative for gold to enable the sellers to have a firm grip on the market. Physical demand is still on very good levels but the unprecedented massive force of buying has retreated towards a much more orderly but still continuous demand structure.
The current environment for the market is very challenging. Stock markets around the globe, even in Germany are marking new all-time highs on a very regular daily basis, and there is very little to suggest that this is coming to an end soon. It appears that these stock market rallies are all fuelled by an enormous surplus amount of liquidity in the market, looking for a home. The rally fuels the rally as most investors don’t want to miss the “boat”.
However, I fail to see how the rally in the stock markets can be put into any sensible relation to the economic plight of the underlying countries. Do the economies of the US, Japan, Germany etc. really do that well? These overenthusiastic moves are creating, in my opinion, an investment bubble. The US economy makes progress, the Eurozone is in recession and Japan spends massive amounts of money in order to come out of deflation.
But, it is what it is and gold comes also under pressure as a result of Foreign Exchange movements. The US Dollar and the Euro have gained against the Japanese Yen and that also decreases the appetite for investors to hold positions in gold. There are quite a lot of analysts out there, NOW, who predict that gold will fall significantly further, even down to test $1000, but I think these might be the same people who had predicted $3000 to $5000 for gold, not so long ago.
The Reserve Bank of India (RBI) bought a significant amount of Gold (200 tonnes) from the tranche of the IMF in 2009. I think I recall the price paid for that to have been $1146 and this level was never broken since the announcement of the purchase. The RBI is currently trying, again, to curb gold imports into India. The circular concerning the gold loan and gold consignment business was released and they would like to see imports of gold to fall in 2013 to under 700 tons for the year. This is a nice and ambitious target, but we have to see how the final result will look like, later in the year. Gold purchases are very often made for auspicious reasons and it might be difficult to try to legislate this away.
The latest Commitment of Traders Report (COTR) (end of business day 14 May 2013), shows a sizeable reduction of long positions, with short positions again massively increased.
Silver: $22.25 – down $1.62 from last week
Silver price action cannot be described as other than disappointing, but it still performed comparatively better than gold. At least silver held the lows of $22.07 but the danger is very real that the $20 level is the next significant support level, once the April low gets pierced.
There is this general feeling of apathy about silver, as the investment community is still holding on to most of their investments. ETF holdings are relatively stable, as the level of redemption of Silver shares does not signal any major pressure coming from that side. The increasing build-up of short positions in the derivative markets could be a positive development, as a spark could unleash some significant short covering.
But this is exactly the problem: It would simply be a potentially wild short covering rally and nothing more than that. Silver production is expected to increase over the course of the next years, with more and more silver coming to the market simply as a by-product found when mining companies dig for Copper or other metals.
The latest COTR (end of business day 14 May 2013), shows that the long positions have reduced slightly and short positions have seen a sizeable increase.
Platinum: $1455 – down $38 from last week.
The price for platinum is now at a premium of US $95 with the price for gold. The Platinum price has now established a decent premium over gold, and historically this was always the default scenario, until approximately two years ago. So this is more or less simply a re-introduction of “normal” price patterns.
Platinum has experienced a positive analysis in the Johnson Matthey report and a supply deficit is expected to be supportive of the future price action. Furthermore, the potential supply shocks from growing tensions in South Africa are going to be part of the staple diet. Lonmin workers have resumed work at all shafts, after another two day wildcat strike, while Amplats workers threaten with strike action, should the company go forward with the implementation of the proposed 6000 job cuts. A potential strike threat for last Friday was not carried out, but the fact that it is even worth mentioning shows the difficulties in assessing the certainties of the supply environment out of South Africa.
The platinum prices tried and failed last week to overcome the resistance levels at $1515 and was then sucked lower by the abysmal performance of the gold price. Nevertheless, the dangerous part is that the platinum price at current levels will not add a lot towards the bottom line for some mining companies. A potential depreciation of the Rand against the US $ would be helpful, but it cannot shoulder the entire economic price burden.
The latest COTR (end of business day 14 May 2013), shows that long positions have been added, and short positions have been reduced.
Palladium: $736 – up $30 from last week.
The release of the Johnson Matthey report confirmed that the palladium market is operating in a structural supply deficit environment. Furthermore, we have seen last week the first green shoots of a potential recovery, or at least bottoming out, in the automotive industry of Europe. Europe is very important for palladium because of the higher percentage of diesel cars in Europe, than for example in the US, which require a higher palladium loading of the catalytic converters, compared with petrol engines.
This was the good news, as palladium’s fundamental strength has been our conviction for quite some time now. However, the increase of investment in ETF’s – the universal bullishness for palladium within the industry – makes us suspicious that “everybody” is already long. We wonder who is left to buy other than the investors, who are already long and increasing their exposure.
Another question is: for how long can palladium keep going up while the rest of the Precious Metals family is under severe pressure? It is scary to think that all, or at least a large portion of investors, want to exit at the same time through this relatively small door. Where should the liquidity come from, other than from rapidly lower prices, to satisfy a sudden rush of liquidation? These scenarios normally end in tears and leave a disillusioned investor community behind.
We are still friendly towards the medium to longer term outlook for palladium, but we do envisage the overbought short term with concerns. We are still looking for palladium to reach $900 per ounce, at some time in the future.
The latest COTR (end of business day 14 May 2013), shows that the long positions have increased, and short positions have decreased.
