There's Gold (& Platinum Galore) in Them Thar...Stars!

On a seasonal basis, China should now import less silver in the period of from April to July, before intake [hopefully] picks up again in August. This development (along with some of the other ones mentioned above) may put downward pressure on the price for the next few months and then possibly add some support the closer we get to the end of this year. In the meantime, Traders Huddle (among other things) remarks that “Looking at SLV’s chart, there’s really nothing in the way of material support to prevent the ETF from falling to $25-$26 in the medium-term.” 

For several years now, amid a rip-roaring bull market in precious metals, and while enjoying profit margins that only Daddy Warbucks could ever have, many a mining company CEO has been heard crying “peak…x (insert your favorite metal here)!” Of course, the peaks those gentlemen alluded to did not materialize, despite such scare-mongering.

However, now, if there are indeed any apprehensions at all about just how much (make that; how little) gold, or platinum, or, whatever, may be left in the Earth’s crust, well, we might begin to let go of them, little by little. That is, provided Messrs. Page, Schmidt, Anderson, and Perot have their way inside of the next decade, or less. 

Quick question: what is this? 

Answer: No, it is not a discarded Mr. Potato Head, or a banana GMO experiment gone terribly wrong.

At left is an asteroid (image courtesy of NASA). Now imagine this celestial object being composed entirely of…platinum, for example. We are talking about 33x13x13 kilometers of pure platinum. Do the math. All of the Earth’s platinum deposits actually came from such objects when they had a head-on with our planet eons ago. Now consider the fact that it would only take a platinum asteroid a mere 500 meters in diameter to suddenly place more platinum at humankind’s disposal than has ever (!) been mined on Earth. We think you get the picture, hopefully.

Well, so do the aforementioned gentlemen. The Google VIPs, billionaire Ross Perot, and other serious (and seriously rich) folks are going ahead with plans to mine the riches of space. Take note of the name of an as yet little-known firm; Planetary Resources Inc. It has big plans and its endeavors could be worth in the trillions. What such new sources of supply would eventually do to the price of the metals in question is a topic best left to ponder on another day.

PR co-founder Eric Anderson says that “Ripping up the Earth’s crust not only is terribly intrusive from an environmental point of view, but it’s actually really expensive and really hard,” Anderson said. “Why not go to the source? There is ample technology to go to asteroids and begin to use resources that convert them into their constituent elements.” Think this is just sci-fi? Think again. Just a few years ago folks howled when they heard of the mere idea of mining metals from the ocean floor. Now, respectable firms such as Nautilus or Neptune are turning those ideas into reality. While some bloggers have been quick to dismiss PR’s outer-space mining visions as mere hallucinations, this Scientific American entry gives it a thumbs-up.

Something else that is apparently undergoing a transformation from idea to reality is the gain in momentum of the US economic recovery. For all the flak that the Fed has caught, its policy approach appears to have yielded some fruit on important fronts such as unemployment and inflation (its dual mandates). We shall see later this afternoon just how optimistic a Fed we are dealing with but if the FOMC statement contains any upgrades on the prospects for the US economy the US dollar stands to possibly break higher. At any rate, it is being said that six policy makers in January forecast a Fed rate increase before 2014, and now others may join their ranks today on signs that the US economy is improving.

The aforementioned idea-turning-into-reality is best judged by certain kernels of import that are normally all but lost in the noise usually being made about Friday jobs data releases and such. We are not talking about the little “bricks” that, when placed together, generally constitute the foundation of an enduring recovery; hours worked, consumer sentiment, business confidence, credit conditions, general business investment, etc. While they all certainly help, the recent shift in drivers for the recovery has been pointing to two agents that show great promise; auto sales and homebuilding activity. Of the 3 percentage points that the US’ GDP grew by in Q4 of 2011, fully 1.7% was contributed by these two types of spending.

Aside from all that, the punditry surrounding what the Fed will say/do/not say/not do remains as speculative in nature as it has always been. The current “flavor” of such guessing reads as follows: “The Fed will likely repeat its plan to keep short-term interest rates at record lows through 2014. It may also signal that it won't likely launch any new program to lower longer-term rates unless the economy weakens. That would be a switch from three months ago, when Bernanke and his colleagues ended their January meeting with hints that they were edging closer to a third round of bond buying. The Fed's bond purchases have been intended to drive down long-term rates to encourage borrowing and spending.”

There was not much to speculate about what the Bank of Canada might soon do, however. Governor Mr. Carney used a Parliamentary appearance last night to once again say that the Bank might have to tighten policy. This probability had already gained traction in the wake of the statement issued after the most recent Bank of Canada meeting. Mr. Carney cautioned that Canada’s households have been loading up on too much debt related to the equity present in their homes. There are legitimate fears that a Canadian iteration of other (since burst) housing bubbles are in the making up here.

Until Friday,

About the Author
Jon Nadler

Jon Nadler is senior metals analyst with Kitco Metals Inc. in Montreal.

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