Fed tests gold upleg
Gold’s outlook and fundamentals remain really bullish.
A 17-week strike at South Africa’s PGM mines and a stand-off between the West and Russia have pushed the palladium price up nearly 16% this year.
The price of palladium hit fresh three-year highs on Wednesday, despite encouraging signs that labour action in South Africa may be nearing a conclusion and news that tensions on Ukraine’s border may be easing.
June palladium futures jumped 1% to $834.45 an ounce in New York, the highest level since March 2011, before easing slightly to $830.60 an ounce in afternoon trade. Palladium hit a record high of $865 in February 2011.
South Africa and Russia combined account for close to 80% of global supply of palladium which is mainly used to clean emissions in automobiles.
More than 70,000 workers at the world’s three largest platinum and palladium producers, Anglo American Platinum (LON:AAL), Impala Platinumm (OTCMKTS:IMPUY) and Lonmin (LON:LMI), went on strike January 23.
In South Africa a judge of the country’s labour court ordered mine management and the militant Amcu labour union into three days of mediated talks on Thursday, seen as the best chance to end the bitter dispute.
According to a website set up by producers the companies’ have lost combined revenue of R18.8 billion (some $1.7 billion) while striking workers have lost more than $800 million in forfeited wages.
Roughly 10,000 ounces of platinum production and 5,000 ounces of palladium are lost each day the strike drags on. Even when strikers do return to work it would take up to three months to restart production.
At the same time Russia ordered its troops amassed on the border with Ukraine to withdraw to “create favourable conditions for Ukraine’s presidential vote and end speculations,” according to President Putin.
A huge factor boosting the the palladium price has been the launch of two new physical palladium-backed exchange traded funds in Johannesburg in late March.
Ole Hansen, head of commodity strategy at Saxo Bank said in a squawk on Thursday the “near perfectly timed launch” of the ETFs by South African banks Absa and Standard has boosted total holdings by 30% since April to close to 85 tonnes or 3 million ounces.
Holdings in a platinum ETF listed a year ago on the Johannesburg Securities Exchange are also at record levels.
July platinum also strengthened on Thursday to $1,475 an ounce, up 7% in 2014.
Platinum production is nearly as concentrated as the of palladium with Russia and South Africa controlling more than 70% of global output, with North American producers a distant third.
Industry consultants Johnson Matthey Plc said yesterday platinum consumption will beat supply by 1.22 million ounces while the palladium shortfall will widen to 1.61 million ounces, from 371,000 ounces last year and the eighth year in a row of deficits.
Bloomberg reports that would constitute the largest market deficits ever, based on Johnson Matthey data going back to 1975 for platinum and 1980 for palladium:
“Supply-side issues are common to both platinum and palladium,” Peter Duncan, general manager, market research at Johnson Matthey, said yesterday. “We do expect auto demand to keep rising. In the medium term, this is mainly to do with emissions legislation in the case of platinum, and mainly growth in vehicle production in the case of palladium.”
