First, in the platinum market, “The elevated level of total speculative short positioning raises the possibility of a short-covering rally should production problems in South Africa resurface, as might be the case with Northam Platinum’s suspension of smelting operations last week Friday.” As regards palladium, the “net speculative length now looks distinctly weak, and speculative shorts are uncomfortably elevated (having reached a 12-month high) and the advantage over platinum that palladium appeared to have had in investors’ minds seems to have been significantly eroded.”
The annual Johnson Matthey PGM reports were released this morning and, after the news embargo was lifted, we learned that while platinum will remain in oversupply this year while palladium will likely shift into a deficit position. The 430.000 ounces of surplus that was present in the platinum market balance in 2011 is likely to persist (roughly at the same level) in the current year.
JM also feels that the situation is likely to bring about a trading range in the noble metal of between $1,450 (which is where we are as of this morning) and $1,750 per ounce in the latter half of this year. JM noted gross platinum demand as having climbed by 2% last year, to 8.1 million troy ounces. For more details, you might dive into this Kitco News summary.
The situation in palladium however is markedly different and it signals that investor perceptions about the superiority of this metal over almost any other in the complex were, indeed, justifiable. Despite the dis-investment in the metal that we witnessed in 2011 amid hefty and (also) justifiable profit-taking, and despite a 13% drop in gross demand for it, palladium now appears to be poised to shift back into a supply/demand imbalance on the opposite side.
As JM’s marketing G.M. Tim Murray sees it, “there will be one further year of sales from Russian state stocks in 2012, albeit at a much reduced level than previously, which will represent the bulk of the remaining government-controlled inventories. Gross demand for palladium in auto-catalysts is expected to rise in line with higher gasoline vehicle output and greater use of the metal in light-duty diesel emissions control systems, resulting in a modest increase in overall gross demand and pushing the market into a deficit.”
As mentioned earlier (all of a sudden) news of the bearish ilk has become not very hard to locate in the precious metals’ space. One has to wonder whether such perceptions have been there all along, buried under the “To Da Moon, Shirley!” noises that lasted beyond last September’s price pinnacle, or whether it has just become fashionable for formerly uber-confident voices to finally admit that something is not well in the market and that perhaps their previous promises were too…generous and/or too premature. A quick scan of the weekend’s news material resulted in the following harvest of diagnoses on the state of the gold and silver markets:
“Gold Heading to Psychological $1,500 Level” blared the headlines in the Dubai Chronicle. The paper noted it expect sellers to test the 89-week moving average at $1,549 the ounce. The same source advised that “Further Losses in Silver Expected” with the breach of the pivotal $30 support level and that the $26.14 low last seen in December of last year could be in the cross-hairs of the sellers. The Globe and Mail concluded that “Gold Loses Lustre As Price Drops” and that “absent a clear signal that the US central bank is prepared to open the money spigot again, gold’s lackluster performance could well continue.”
But, wait, there’s more, says the UK’s Economy News. Ask the question “Where to for the gold price?” and the article’s writer replies that “The decade-long bull phase could give way to a major correction.” Whilst not framing how “major” the correction might come to be, the breach of the all-important $1,580 mark –in the opinion of a technician the source quotes-places the yellow metal on the brink of such a period. Recent developments in the gold market have prompted Barclays Capital to scale back on its gold price projections and, perhaps more importantly, to reclassify the yellow metal as a one that behaves “closer to risky assets rather than differentiating itself as a safe-haven asset.”
Meanwhile, the Times of India relays stories about struggling goldsmiths who have had to take up odd jobs to fill the gap left by the lack of work (and especially gold demand which has reportedly fallen by some 30% in Q1 of this year in that country) in the wake of the recent strike in the industry.
The notable statistic here is the fact that at 35,000 rupees, ten grams of gold would take a seven-month bite out of a goldsmith’s annual pay to acquire. Presumably, a goldsmith may enjoy a better income than many other Indians, but the math begs the question of how little might be left with which to buy some gold after the essentials are covered by the average Indian working person…
Until Wednesday, don’t forget about the one item to still possibly play itself out in coming months…to the benefit of the buck.