Hedge funds’ bullish bets on gold jump to four-year high
Hedge funds and other large speculators boosted their net-long position in gold.
On Wednesday, platinum and palladium futures took a breather following a month of brutal trading as bargain hunters return the sector and holdings in physically-backed ETFs stabilize.
In afternoon trade on the Nymex in New York platinum for delivery in January – the most active contract – added a buck to exchange hands for $842.40 an ounce.
The price of the metal has declined more than 15% over the space of a month, hitting its lowest since November 2008. At the time the platinum price quickly recovered but for any sustained period trading below $800 an ounce you have to go back 12 years.
While the gold price has also suffered, the platinum discount to gold is now at a record of more than $220, exceeding even the gap when gold was trading at record highs above $1,900 an ounce in 2011. Traditionally platinum has attracted a premium to gold.
Nymex contracts for December delivery of sister metal palladium exchanged hands $553.20 an ounce Tuesday, up 2% on the day following a recovery from a low of $528 an ounce last week. Palladium has been on a wild ride reaching a 13-year highs above $900 an ounce in September last year but is now back to levels last seen early-2010.
Apart from jewelry platinum’s main application is in autocatalysts to treat emissions, while more than 70% of palladium finds its way into vehicles. PGM supply is also highly concentrated with 70% of platinum produced in South Africa and Russia dominating palladium production.
Worries about demand following the Volkswagen scandal hurt platinum’s prospects in Europe, its largest market where diesel engines dominate. Palladium has come under pressure from fears of a sharper than expected slowdown in China, the world’s largest car market which like the US is dominated by gasoline engines.
The decline in PGM prices was exacerbated by investors liquidating their holdings in physically backed exchange traded funds. The launch of two popular physically-backed palladium ETFs in Johannesburg in March last year gave an additional boost to palladium and platinum already boosted by the crippling strike in South Africa.
But investors have pulled out nearly 14 tonnes from platinum ETFs and some 18 tonnes from palladium funds just since August, a dramatic shift considering total holdings for the industry topped out at just 200 tonnes. After a surge of investment earlier in the year, net outflows are now predicted for the year.
Surging supply could further dent PGMs despite predictions of a deficit this year and next. A new report by the World Platinum Investment Council forecast an 8.5 tonnes shortfall this year and a balanced market in 2016.
A 7% decline in recycled platinum owing to lower jewelry demand in China and weaker prices would not be enough to offset strong output growth says WPIC. That’s thanks to South African production reaching pre-strike levels helping global output to rise by 6% 218 tonnes in 2015 followed by more modest growth in 2016.
Platinum is set for an annual deficit of 20.3 tones in 2015 and palladium a 13.3 tonnes shortfall according to a Johnson Matthey semi-annual report released last week. The autocatalyst and chemicals company predicts South African production will rise 20% to the highest since 2011, with a double digit drop in recycling again not enough to offset higher global output.
