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Precious Metals Report: Local physical buying of gold.

Physical buying of gold in the region has been good, Gold kilo bars loco Dubai are trading again with a small premium against loco London. The strength of the Indian Rupee has been a very strong factor in this turnaround.

Economic Background

Europe: Speculations surrounding Spain helped to lower the 10-year bond yield to 5.69 per cent. The European Central Bank (ECB) left interest rates unchanged at 0.75 per cent.

UK: The Bank of England (BoE) left interest rates unchanged at 0.50 per cent. Furthermore the BoE decided against further Quantitative Easing (QE) at its meeting last Thursday.

US: The September Non-Farm-Payroll (NFP) numbers were released and 114.000 new jobs have been created over the course of the last month. The August NFP number has also been revised upwards from 96.000 to 142.000. The unemployment rate fell to 7.8 per cent, the lowest rate since January 2009.

South Africa: Amplats sacked 12,000 workers in on-going disputes over pay. The miners have been staging unauthorised wildcat strikes. Goldfields evicted 5,000 workers from dormitories over claims of intimidation of fellow workers. An approximate number of 75,000 workers are currently striking illegally in the South African Precious Metals Mining industry.

The Indian Rupee finished the week at 51.91 to the US dollar.

Gold $1782.00 - up $10 from last week.

The gold market traded up over the course of last week and reached an 11-month high on Friday after touching $1796. The positive NFP numbers triggered some profit taking, which saw gold falling back to the mid $1770 levels before recovering to close the week at the $1782 level.

It looks pretty clear that the market is long and overbought, but there is lack of news that could trigger a wash-out in order to potentially facilitate more fresh buying. The initial resistance at $1790 is now consigned to history books, but the $1800 level seems to grow in importance. This level, however, is mostly psychological, and the regaining of the $1800 would lead to an even stronger bullish mode for gold. There are many analysts out there who are now amplifying the call that gold could still reach the $2000 within 2012, something which we have advocated without fail all this year. Gold reached new all-time highs last week against the Euro, Swiss Franc and South African Rand.

The illegal strikes and the escalation in the South African mining industry are of growing concern for the whole precious metals industry. The hardening stance of both sides and the potential political implications, in a country which will entertain new parliamentary elections in December, is adding to the importance of the situation.

The premium from Gold over Platinum fell last week to $85. The premium fell last Friday briefly to just over $65 before some profit taking became evident before the weekend.

The latest Commitment of Traders Report (COTR) shows that there has been a steady increase of new long positions, but there have also been an increase in short positions. The COTR report is based on positions at the close of last Tuesday (October 2).

Silver $34.50 - unchanged from last week.

Silver finished the week unchanged for the second week running and that is very unusual in itself. However, silver traded again above the $35 level on Friday, before trading down to the support level at $34.30 after the release of the NFP numbers. Consolidation is the best word to describe the current status quo of silver for a lack of a clear trend. The next directional move will most likely be inspired by either gold or platinum but silver seems to be only the passenger and not the driver at this moment in time.

The COTR report shows that new long positions have been recorded, while some short positions have been covered. (End of business Tuesday, October 2)

Platinum $1697 - up $40 from last week.

The discount to gold has decreased to $85. Platinum prices had a good week with headline news trading out of South Africa continuing. Platinum prices traded last Friday up to a new high for the year above $1730, before some strong profit taking pushed it back down below or around the $1700 level. The escalation of the working relations in the platinum industry has reached new highs with Amplats decision to fire 12,000 workers. Amplats, the world's largest producer of platinum, reacted to the on-going illegal strikes and the aerial widening of the conflict in the country. We expect the supply/demand balance for 2012 to be in neutral territory, and a longer conflict between the two sides will also change the view towards the expected surplus for 2013. This might be a longer term plus for the platinum industry but the difficulty will be to ensure the cost control in local currency.

The COTR shows a further increase in new long positions, while short positions have continued to be reduced (End of business Tuesday, October 2).

Palladium $658 - up $23 from last week.

Palladium rose by $23 last week but lead an otherwise relatively quiet life, compared with the other precious metals. The escalation of the working relations in South Africa have not manifested yet in rising palladium prices, but this is most likely to happen, as palladium is already in a structural supply deficit. South Africa produces twenty per cent of the world's palladium and that cannot be ignored. A change in the world economic outlook does not appear to be imminent but that would clearly amplify the underlying strength of the metal. Palladium looks like to be the most solid precious metal based on the fundamentals alone.

The COTR shows a miniscule increase of long positions, while a small amount of new short positions have been recorded (End of business Tuesday, October 2).

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Publication:CPI Financial
Date:Oct 6, 2012
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