Commodity Corner Extra
On Friday, April 15th, gold suffered its greatest fall in 30 years, and took another pummelling on Monday the 18th, again down 8.7%. The five day peak to trough decline was from around $1560 per troy Oz to lows of around $1320. In recent days it has recouped some of these losses, rising to $1440 as we write. Gold wasn’t the only metal to take a hit however; silver is down nearly 25% and many of the other Industrial metals followed suit, including platinum and copper. SBM had called for short trades back in January 2013, and I quote, “we are almost a lone dissenting voice in our call for gold weakness — a stance we find comfort in.” Investors, who have enjoyed stellar gains in gold over the last decade of some 700%, are now feeling the pain. Gold has increasingly made up between 2-10% of investor portfolios as it appeals: as both an inflation hedge and in times of general economic uncertainty. The sell-off in gold was initiated by weak data from China, where underwhelming first quarter growth of 7.7% instead of the expected 8.0% sent jitters through the markets. Concern is that demand from China is now withering and this caused a sell-off in commodities as a whole as well as a slide in the Aussie Dollar. Some market analysts believe that recent falls are only the beginning and that we are now entering a multi-year bear market. Quotes that gold could find equilibrium around $900 per oz are widespread. At that level, however, many gold miners would be under water and so supply would diminish sharply and, of course, the immutable law of economics — supply and demand — would come into effect. We think the downside in gold is $1150-$1200.
“SBM had called for short trades back in January 2013, and I quote, “we are almost a lone dissenting voice in our call for gold weakness — a stance we find comfort in.”
84 | www.financial-spread-betting.com | May 2013
One metal that could demand a further look is platinum. Platinum is often thought of along the same lines of gold due to its jewellery association. However, whilst over 60% of gold demand is for jewellery, platinum has a much higher industrial use in comparison. The platinum price has also been affected by the slump in gold prices, but the market has considerably different supply dynamics — whilst gold production is global (US, Australia, Africa, China etc.), platinum is different. 80% of the world’s supply is exclusively from South Africa, with Zimbabwe and Russia being the other main suppliers. The key to industrial use of platinum is that this greyish white metal is resistant to oxidation and has important catalytic properties — hence it is estimated that 45% of platinum goes into the catalytic converters for automobiles. Thus developments in the auto industries and its growth are closely correlated to platinum prices and, more accurately, what happens in the diesel engine market.
Platinum production by geography PIE CHART
Current platinum prices stand at $1420 a troy Oz, way off of the highs before the financial crisis in 2008.