Precious metals started the trading week in mixed fashion with initial spot bids showing gold and silver prices marginally lower while platinum and palladium moved notably higher. The US dollar resumed its upward course this morning after the brief pause that was noted on Friday. The trade-weighted index had the greenback trading at 81.30 at last check while crude oil advanced to $91.65 per barrel (up less than 20 cents). Spot gold opened near $1,587 with a $5+ per ounce decline in New York.
During the overnight hours gold managed to touch the psychological $1,600 mark in the wake of pro-growth remarks coming from Chinese Premier Wen. Despite the Chinese leader’s overt concern about a too-sharp slowing in the country’s economy, the reality is that the real estate sector still contributes 13% or more to the GDP and is thus still the pivotal factor in whether or not China experiences a hard landing in months to come.
At the end of the day, once again, the gold market is exhibiting its dire addiction to stimulus and more stimulus no matter what country might be contemplating it. The dependence on easy money as fuel for rallies to the upside remains the defining character of this market. Hedge funds have reduced their exposure to commodities overall by 15% in the latest reporting period, with exposure to gold taking the biggest hit and resulting in what Bloomberg News this morning called a “flight from gold” by investors.
Despite the recovery that pulled gold prices back from bear market conditions and lows under the critical $1,527 pivot point, the latest set of CFTC positioning reports did not offer much in the way of encouragement for the bulls. The net speculative length in gold is currently hovering near a one-year nadir of just over 330 tonnes and is underscoring a market that is riddled with a lack of faith and that is now being pressured by emboldened short-side players. However, with longs being as few in numbers as they presently are, a pop in gold prices could well materialize ($1,640 anyone?) if such players attempt to rebuild positions.
The situation in silver’s market positioning is apparently a bit more positive after the drop to the recent lows and the ETF niche tallied purchases of 49 tonnes on the period. However, as Standard Bank’s commodity analysis points out this morning, “The continued increase in shorts is a cause for concern, as a bearish view on silver appears to be gaining traction. Accompanied by the decrease in longs, this does not bode well.” For the moment, the white metal appears caught in the $26-$30 trading range and pitched floor battles might ensue between opposing sides when and if those ends of the price spectrum are once again touched. Monday morning’s opening bids came in near the $28.25 level (a 49 cent drop per ounce).
Platinum climbed $7 this morning and was quoted at $1,458 the ounce while palladium moved $10 higher to reach $612 per ounce. The CFTC reports showed still-strong levels of short positions and a market principally dependent of supply disruptions from South Africa in order to be able to move substantially higher. The Wall Street Journal notes that “Platinum faces serious supply-side risks. While South African platinum mining output is expected to increase slightly this year as producers ramp up capacity following widespread production stoppages in the final part of 2011, if obstacles to production re-emerge, the resulting tightness in the market could push up prices.”
On the other hand, platinum market surpluses continue despite some 50% of producers of the noble metal incurring net losses for every ounce they produce. Refiners Johnson Matthey estimate that the global platinum market was in oversupply by 430,000 ounces in 2011. The specialty-chemicals firm anticipates that a similarly-sized platinum market surplus could be on tap this year as a decline in mine production is countervailed by stalling demand from the automotive sector and by lower demand from the glass and petro-chemical industries. JM envisions platinum trading between $1,450 and $1,750 over the coming half-year.
Platinum market observers are wondering which one of the suppliers will “blink” first and begin withholding supply instead of sitting around and simply hoping for higher prices to ease their balance sheet pain. Meanwhile, ETF-based palladium net selling (21,000 ounces) emerged during the latest reporting period and its first-in-five-weeks presence indicated some cracks in the former levels of speculative investor interest in the market.
Well, it turns out that we might have to wait a bit longer for the advent of the end of the world’s oil supplies, albeit the nation that found a bunch of it last week is not the most “reliable” of suppliers for various reasons. Iran discovered what could be more than 12 billion barrels of black gold under the floor of the Caspian Sea. Leaving aside the gruesome details of how dinosaurs may have contributed to global warming and to their own demise, the net result of their extinction still fuels humankind by an overwhelming margin and thus the discovery is remarkable, no matter who claims title to the pool of goo.
That kind of mega-deposit of crude could boost Iran’s current reserves by about 10 percent and is the size of all of what Algeria is thought to possess. The entire basin may contain as much as 33 billion barrels of dino juice – almost double of what the North Sea region is estimated to hold. Along with that much oil the region is also likely to eventually yield near 8 trillion cubic metres of natural gas.
The weekend brought a slew of conflicting news headlines concerning Greece and the odds of it remaining or not remaining in the euro zone. The G-8 meeting yielded nothing to bite into in terms of any concrete steps to resolve Europe’s troubles, but, hey, that came as no surprise to many market observers. They have by now lost track of the number of “be-all/end-all” meeting that have taken place over the past couple of years on the subject.