Tag Archives: metals

bullion

Chinese Consumerism Props Up Gold Prices

Despite fears of commodities losing value this year and investor hesitation in buying into gold, the precious metal climbed to its highest level in three weeks on increased consumption in Asia, despite the lack of investing demand.

Last year, gold dropped 28 percent of its values, the most since 1981, as investors fled to rising equities and dampened inflation for store value. The Fed’s highly publicised talks regarding economic stimulus and last month’s decision to cut funds for bond purchasing from $85 billion to $75 billion played a big role in the market sentiment towards gold.

Despite investors’ hesitation, however, Chinese consumers are certainly taking advantage of the lower prices as shipments of gold to China more that doubled in the first eleven months of the year, as data from the Hong Kong Census and Statistics Department. The title of the world’s biggest bullion consumer has probably shifted from India to China, the World Gold Council said.

SPDR Gold Trust, the biggest gold-backed exchange-traded product, saw its holding deplete to 794.62 tons yesterday, the lowest since January 2009, according to reports published on the fund’s website. A sum of 552.6 tons was taken out in the past year.

Other metals have been showing upward movement as well. Silver for immediate delivery rose 0.2 percent, its fourth consecutive day of advancement. Platinum also climbed 0.2 percent, while Palladium fell 0.1 percent.

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morning-coffee

The Future’s Bright…The Future’s Platinum

Platinum hasn’t been in the news much lately, yet global demand has hit record levels amid dwindling supply. With its price now sitting below its cost of production, pointing to further supply shortages, is there a case for buying platinum?

There is currently a record demand for platinum with a record of 8.4 million ounces needed this year. Just over three million ounces of that is needed by the car industry for catalytic converters and a further 2.75 million needed for jewellery. Demand has been steadily growing since 2009. Yet the platinum price has been steadily falling since mid-2011, when it hovered briefly around the $2,000 mark.

You may be excused for thinking that there has been an increase in supply but that isn’t the case. World platinum mine supply was fairly constant from 2007 to 2011, ranging between 5.9 million and 6.6 million ounces. But in 2012, that fell to 5.7 million and it hasn’t rebounded.

Around 75% of global platinum supply comes from South Africa, where production has been falling since 2011. Add in the cost of building the mine and compound deficits over time, platinum mining becomes a very expensive loss-making exercise. A mine can only lose money for so long before it gets shut down. At least four have closed this year already and now only higher-grade, more profitable rock is being mined pointing to further supply falls in the future.

South African platinum production therefore looks fragile as does the other main producer, Russia, where production has also fallen. In addition, the ratio of gold to platinum, low by historic standards is almost 1:1 just now i.e platinum costs about the same as gold. It’s not unusual for platinum to cost twice as much as gold.

Nevertheless, according to reports, the demand-supply deficit will grow as the above-ground stock will run out and the platinum price will rocket. So why has the price been falling in the face of such bullish fundamentals?

Historically, platinum tends to follow the same trend as the CRB index, following the same direction almost all of the time. The CRB is about 75% weighted to energy, grains, meats and softs, things that have nothing to do with platinum. Yet, where it goes, platinum goes and that has been the case for years. Commodities are in a bear market i.e. trending down and nobody knows when this will end but there is quite clearly a set-up for a supply squeeze and higher prices. The question is when? Platinum’s time will almost certainly come again, possibly sooner rather than later. Its future’s looking bright…

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Mine

Mining Industry Cutting Budgets to Counter Anticipated Losses

The metal rally that has kept the mining industry into expansion mode over the last decade seems to have been losing steam, as mining companies themselves appear to be putting measures in place to conserve money to counteract anticipated losses.

The second-biggest mining company in the world, the Rio Tinto Group (RIO), will only be allocating $8 billion to expenses in 2015, an amount that is less than half of half year’s outlay. The chief executive officer of the London-based company, Sam Walsh, stated that the company’s “capex is reducing, and will come down further. “From where I stand, we continue to see market fragility and volatility.”

Only yesterday, the world’s biggest iron ore company, Vale SA (VALES), downsized its investment budget for the third consecutive year to $14.8 billion, the lower for the company since 2010.

In the market, Rio dropped 0.6 percent, while BHP Billiton Ltd., the biggest mining company in the world, fell 1.2 percent.

Rio’s CEO, however, does not seem entirely dispirited about the prospects of the mining industry. “Over the longer term, I remain optimistic about demand for our products,” Walsh reported. “China’s urbanization will continue and the development of other economies as they continue to grow at pace, such as India, Vietnam, Indonesia, the Philippines, the Middle East, the former Soviet Union, South America and Africa, will also contribute to ongoing demand.”

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Platinum

Platinum and Palladium Predicted Best Performing

Record global car sales will keep platinum and palladium in high demand and short supply for the third year in a row, according to forecasters.

The prediction marks the longest stretch of shortage for the metals, which are used as catalytic converters, since 2005 for platinum and 2000 for palladium. Platinum is expected to gain 13 percentage to average $1,635 an ounce by the fourth quarter of next year. Palladium is predicted to gain 10.3 percent to average $823 an ounce, its highest for a quarter since 2001.

Unlike gold and silver that have slumped 20 percent or more as investors lose faith in them as a commodity of value, the market is bullish on platinum and palladium. Although metal stockpiles are diminishing as mining companies have difficulties in keeping up with current demand, car sales growth is projected to increase to 4.8 percent in 2014 from 2.7 percent this year.

It is expected, however, that improving mine output will decrease shortages. The platinum deficit is projected to decline 59 percent to 239,000 ounces and that in palladium to narrow 16 percent to 686,000 ounces, according to Barclays. Primary supply will expand 0.4 percent for palladium and 2.1 percent for platinum, the bank says. Should mines be disrupted by strikes or natural disasters, there exist stockpiles that can be tapped. This year, about 80,000 ounces of platinum was lost to such events.

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