Precious metals lose luster for investors

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The holdings of gold in ETF`s are now reportedly at levels last seen in early 2008.

Gold: $1448.00 – down $22.50 from last week

The price for gold is trading now at a discount of $45 with the price for platinum.

In early 2008, which means the time before Subprime, Lehman Brothers and the European Sovereign Debt crisis, the amounts held in gold represented the “hard core” of gold believers. These numbers were not watered down by investors parking their money until another asset class looked more attractive. We did not have a zero interest rate environment globally in early 2008 and still, gold holdings were stable. It is also true that the stock markets globally look now very attractive and that money is coming out of asset classes, like commodities and fixed income, and being shifted into equities. This means that we might see a little bit more liquidation out of ETF`s but I strongly doubt that the pace seen, will continue unabated. The stock market rally are largely fuelled by global currency debasement wars and the enormous amount of liquidity, stoked by Central Banks, in the financial system, sloshing around in the hunt for some kind of enhanced yield.

There have been some speakers from the FED last week, namely Mr. Plosser, a non-voting member, who expressed his views that he would like to see the curtailment of Quantitative Easing being discussed and put in place, as early as the next FED meeting, which will take place on 18th and 19th June. It is clearly important to see the outcome of this meeting, but I am getting really bored with the permanent discussion over QE, as if the gold price would solely depend on it. FAR FROM IT. Physical markets have done magically well in recent weeks with people from the industry commenting on the amounts of gold bought in regional markets. One commentator said that the physical off-take in HK has been to the tune of 30 tonnes between the 29th April and the 2nd May alone. Participants of the physical industry in Dubai believe that an additional 50 tonnes have been bought since the price crash in April. These sales figures are in addition to the “usual” numbers and put a little perspective on the derivative side of the market.

Chinese gold import numbers reached record highs, with March imports from Hong Kong reaching 224 tonnes. This means that the imports for the 1st Quarter on 2013 have reached 378 tonnes. India has also seen record import levels. April saw imports of more than 100 tonnes and the same is expected for May. However, this might be in anticipation of increased sales for Akshaya Tritiya, but possibly more so in front of the restrictions for gold imports from the Reserve Bank of India, which are expected to come into force at the end of this month. Nevertheless, both countries, i.e. India and China, are well on their way to breach the 1000 ton level for physical demand in 2013.

Gold refineries are currently working flat out 24/7 in order to satisfy orders from all over the world. The refineries need to borrow gold from the market in order to be able to produce the small investment bars, coins, jewellery etc. However the borrowing from the gold refineries of the world do not explain the sudden rise in borrowing cost for gold, especially with the huge amount of gold liquidity (theoretically) available from the redemptions of ETF holdings. Another possibility could be that there is renewed interest from the gold producer side to re-engage in forward hedging. THE RETURN OF THE HEDGER could become another classic after the near extinction of the species in the early years of this century.

The latest Commitment of Traders Report (COTR) (end of business day 7 May, 2013), shows a further reduction of long positions, while short positions have massively increased.


Silver: $23.87 – down $0.25 from last week

Silver price action can be described as lacklustre during last week’s proceedings. This also means that the upward bounce in gold, seen earlier last week, was more or less ignored by silver investors and prices came under renewed pressure last Friday. The investments in ETF`s are slightly positive and short positions, as of the last COTR, have also been reduced. However, these overall positive developments have not led to a more positive price environment and my only conclusion is that the silver investment community appears to be happy and satisfied with prices at the current levels.

The latest COTR (end of business day 7 May 2013), shows that the long and short positions have decreased.

Platinum: $1493 – down $7 from last week

The price for platinum is now at a premium of $45 with the price for gold.
Platinum prices have shown resilience, considering the fall in the gold price from last Friday. Platinum prices had reached highs for the week of $1515 before falling back and closing just under the $1500 mark.

Platinum week in London means that we have to be prepared for revelations out of the Johnson Matthey report, to be released on Monday, 13 May. The announcement from Amplats to cut 6000 jobs, instead of the 14000 envisaged as far back as last January, will be of equal interest as the fact that Amplats will curtail the production of platinum in 2013 by 250.000 ounces and by 100.000 annually from 2014 going forward. The South African Unions have already indicated that they will fight these plans and further strike action amid heightened tensions cannot be excluded.

These expected production losses will play a significant role in the potential oversupply or deficit numbers for the year. The job losses in the South African platinum industry are also amplifying social issues in the most important producer country, with unemployment rates being already on a very high level. This might lead to potential further supply shocks and could be supportive for the overall price action.

The latest COTR (end of business day 7 May, 2013), shows that the long positions have decreased, and short positions have increased.

Palladium: $706 – up $13 from last week

Palladium tried again and succeeded to close for the week above the $700 level. Palladium prices went up to $710 level, before the sell-off in gold, last Friday, stopped the market from further gains.

The outlook for the global economy looks much more upbeat than even a few weeks ago, with sales figures from the automotive industry being particularly positive. The London Platinum and Palladium week is upon us all of next week. The Johnson Matthey review and forecast of supply and demand will be released on Monday, 13th May. The Platinum Metals Group industry will then spend the next few days to digest and to discuss the assumptions and implications resulting out of this release. I expect that the potential supply deficit on the one side, the heightened deliveries from Russia seen in March 2013 on the other side, as well as the production cost structures, will be the main topics in the meetings and participants’ conversations.

The latest COTR (end of business day 7 May, 2013), shows that the long positions have decreased, and short positions have increased.

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