Precious metals prices headed a bit lower at the opening this morning, mainly on the back of light profit-taking that ensued after the euro retreated and the US dollar rose owing to apprehensions about Europe and Asia. Some Japanese firms stopped their production activity in China after violent anti-Japan protests took place during the weekend. The protests came in the wake of Japan’s nationalizing of a group of disputed islets in the East China Sea.
Spain and its possible bailout continue to weigh on investors’ minds despite denials by th IMF that no rescue-oriented discussions are taking place at the IMF or the ECB. Deposits are fleeing from Spain’s banks at a hefty clip ($34 billion were drained in July) and are throwing the loan-to-deposit ratios in certain banks into a situation where lending will become questionable, at best.
Meanwhile, two-thirds of polled Germans are convinced that they would be better off if the euro was not the currency of the realm and if they had stuck with the mark. Nearly half of Germany’s polled denizens also believe they would be better off wihtout the EU itself. By contrast, only one-third of polled French folks still miss the franc at this point in time and less than a third of Polish folks believe they would have fared better without the advent of the EU.
Over in Asia, Chinese stock markets took a tumble in the wake of growing Sino-Japanese tensions over certain disputed islands and following rising perceptions that, unlike the Fed, and the ECB, the PBOC might not only not follow suit and stimulate the country’s decelerating economy, but might actually be forced to…tighten if the present pattern of capital flight and currency strength continues. Contrary to conventional “wisdom” the principal creator of fresh global money supplies since 2007 has been China and not the Fed.
Now that the Fed news has been “baked” into the market equation and the “sugar rush” appears to be wearing off just a bit, participants are once again focusing on the slowdown in China and the structural issues plaguing the financial side of the EU. Spot gold traded near $1,770 and silver near $34.50 per ounce respectively as the greenback retook the 79.00 level on the trade-weighted index and as crude oil and copper prices declined 0.30 and 0.90% respectively.
Conflicting news regarding physical gold demand was once again on tap overnight. One source (Barclays) reported an increase in Indian gold demand ahead of festival season and based on the fear that if purchases are not made now, the price tags will only be higher in the months ahead. Another source (India’s Business Line) reported that with gold at 32.000 rupees per ten grams, “people who bought gold coins or small pieces of jewellery a few months ago are now selling them for cash.” One World Gold Council report notes that Indian consumers are “disenchanted” with the current gold price while local gold retailers report a 20%-30% decline in foot traffic.
The latest CFTC market positioning reports show that net spec length in gold gained for a fourth week last week, while in silver the net spec length as a percentage of open interest is indicating a market that is – in the words of Standard Bank analysts – “becoming overstretched.” The specs do not appear to be particularly bullish on platinum, despite the developments you can read about below, and the specs in palladium decreased positions by almost 16,000 ounces.
Platinum fell $9 to $1,696 while palladium dropped by the same amount to the $686.00 per ounce leve. Rhodium was ahead another $25 to reach $1,325 per ounce on the bid-side. Mining group Lonmin revised its forward-looking platinum sales forecasts owing to the on-going labor strife at its Marikana mine in South Africa. Workers at that mine rejected a wage offer on Friday and remained above ground. On Saturday, local police used stun grenades and rubber bullets to disperse a crowd of about 1,000 protesters gathered near that facility.
Albeit the sales projection cuts made by Lonmin amount to between 50 and 65 thousand ounces for the year that ends this month, the PGM market is still very concerned about output for the noble metal and are quite aware of forecasts for significantly higher prices in months to come, should the troubles down in South Africa persist. That country sill mines 80% of global platinum supplies.
The South African government has vowed to halt all illegal protests and to disarm strikers who have halted production at one gold and six platinum mines across the country recently. CPM Group analysts fear that the political and labor issues have no quick solution at hand and that the platinum market is not only no longer oversupplied but is in a tighter balance than commonly estimated.