Etikett: South Africa

Gold Haven Demand Eerily Absent

Gold Haven Demand Eerily AbsentGold Haven Demand Eerily Absent

ETF Securities Commodity ETP Weekly Gold Haven Demand Eerily Absent

Platinum group metals see outflows amid price declines.

Bargain hunting drives inflows into agricultural commodities.

Long oil ETPs see first net inflows in 12 weeks.

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The market took the Fed’s post-meeting comments to be dovish, leading the US Dollar to slip 1% percent. Gold gained 2% in US dollar terms as USD weakness and Greek financial woes lent support to the haven asset. The complete stalemate in debt negotiations could see gold prices rise further. With Greece facing a number of payment deadlines this month, the country’s financial situation is looking more precarious than ever. However for now financial market are optimistic that a deal will be struck today. A sharp re-pricing of risk could materialize if such a deal is not reached. Gold is likely to reassert its traditional role of a hedge asset in such event, but for now demand has been surprisingly muted.

Platinum group metals see outflows amid price declines. Last week we saw US$8.7mn of outflows from long platinum ETPs and US$5.0mn of outflows from long palladium ETPs as prices fell 1.8% and 2.9%, respectively. While auto sales growth may not be as brisk as it was a year ago, falling energy prices should bode well for sales, especially of larger vehicles which require higher platinum and palladium loadings in their autocatalysts. Additionally, as we enter the notorious “strike season” in South Africa, mine supply of the metals could become constrained. We believe that sentiment is excessively negative and that there is a tactical opportunity for those who have the resolve to weather the near-term volatility.

Bargain hunting drives inflows into agricultural commodities. Three of the top 5 five inflows were into agricultural commodities last week. A depreciating Brazilian Real pushed coffee and sugar prices down 2.5% and 3.4%, respectively, while favorable weather (for now) is helping the Brazilian harvest. After rallying earlier in the month due to excess rain in the US, wheat fell 3.2% as more favorable weather materialised. Weather remains the key for fortunes in the agricultural space. The increased probability of El Niño lasting to the end of this year, raises the risk of weather-related crop damage and a number of investors have used this price dip as a tactical entry point. We saw US$5.4mn of inflows into long wheat ETPs (6-week high), US$4.9mn into long sugar ETPs (13-week high) and US$5.1mn of flows into long coffee ETPs (4-week high). Flows into broad basket agricultural ETPs hit US$9.6mn, a 5-week high, highlighting the broad-based interest in the asset class which has seen considerable price pressure over the past year.

Long oil ETPs see first net inflows in 12 weeks. While marking the first (long) inflows across the sector in 12 weeks, all the inflows were into WTI (US$5.6mn), and Brent ETPs continued to see redemptions (-US$0.3mn). Brent fell 1.3% last week, while WTI staged a more modest decline of 0.5%. We believe that oil prices will fall in the very short term as over-optimism about the pace of supply tightening gets reality check. Eventually as high cost producers outside of the US make credible cutbacks to production, we see the price recovering.

Key events to watch this week. The evolving Greek debt saga will continue to be the focus of investor attention next week. The rising threat of an accident could crystalize fears of a Grexit which should be gold price positive. Elsewhere US durable goods and Chinese manufacturing PMIs will provide gauge for how the world’s largest economies are faring and likely demand for cyclical commodities.

Video Presentation

Nitesh Shah, Research Analyst at ETF Securities provides an analysis of last week’s performance, flow and trading activity in commodity exchange traded products and a look at the week ahead.

For more information contact

ETF Securities Research team
ETF Securities (UK) Limited
T +44 (0) 207 448 4336
E info@etfsecurities.com

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Platinum Strike Premium has been Removed

Platinum Strike Premium has been Removed

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AMCU agrees to take an offer to workers, possibly ending the 21-week strike

The strike premium on the platinum price appears to have been removed following news of a possible agreement between the three biggest producers and the AMCU. Platinum is now trading below the levels seen before the strikes began in January, indicating markets have overreacted to the news. We remain bullish both platinum and palladium and believe that prices will recover in the coming months.

  • Platinum and palladium prices dropped sharply as Amplats, Implats and Lonmin announced an “in principle” agreement has been reached with the Association of Mineworkers and Construction Union (AMCU).
  • This could bring to an end the 21-week long strike that has seen the loss of over 1moz of platinum and over 500koz of palladium, according to our calculations. Representatives of the three biggest producers and of the AMCU will meet today to seal the deal.
  • We believe platinum will be the most hit by the news of a resolutions as over 70% of production of the metal is concentrated in South Africa. However, given the minimal strike premium priced into platinum prices now and a pick-up in global demand, we believe the correction will be short-lived.
  • While a strike resolution will reduce immediate uncertainty and put downward pressure on prices, it will be some time before most mines are brought back to working condition, with some mines at risk of permanent closure or permanent reduction of production capacity.
  • In addition, after a sharp run-down in PGM inventories by both producers and consumers, inventories will have to be re-built.
  • With the US economy picking up, China reflating and Europe and Japan demand stabilising, platinum and palladium demand is expected to quite substantially outstrip supply in 2014 and into 2015.
  • Johnson Matthey forecasts platinum and palladium to see deficits equivalent to 14% and 15% of global demand in 2014.
  • On our estimates, the metals are trading below their cash operating costs. As we write, platinum is currently trading around 20% below the estimated cash operating costs per platinum equivalent ounce. Therefore, in our view, the current price drop may represent an opportunity for medium to long-term investors to accumulate the metals at attractive prices.
  • We continue to target platinum and palladium prices to rise to US$ 858/oz and US$1,550 respectively in the next six months.

For more information contact:
ETF Securities Research team
ETF Securities (UK) Limited
T +44 (0) 207 448 4336
E  info@etfsecurities.com

Important Information

This communication has been provided by ETF Securities (UK) Limited (”ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority (the ”FCA”).

When being made within Switzerland, this communication is for the exclusive use by ”Qualified Investors” (within the meaning of Article 10 of Section 3 of the Swiss Collective Investment Schemes Act (”CISA”)) and its circulation among the public is prohibited.
The information contained in this communication is for your general information only and is neither an offer for sale nor a solicitation of an offer to buy securities. This communication should not be used as the basis for any investment decision. Historical performance is not an indication of future performance and any investments may go down in value.

This document is not, and under no circumstances is to be construed as, an advertisement or any other step in furtherance of a public offering of shares or securities in the United States or any province or territory thereof. Neither this document nor any copy hereof should be taken, transmitted or distributed (directly or indirectly) into the United States.

This communication may contain independent market commentary prepared by ETFS UK based on publicly available information. Although ETFS UK endeavours to ensure the accuracy of the content in this communication, ETFS UK does not warrant or guarantee its accuracy or correctness. Any third party data providers used to source the information in this communication make no warranties or representation of any kind relating to such data. Where ETFS UK has expressed its own opinions related to product or market activity, these views may change. Neither ETFS UK, nor any affiliate, nor any of their respective, officers, directors, partners, or employees accepts any liability whatsoever for any direct or consequential loss arising from any use of this publication or its contents.

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