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Platinum price jumps on SA tensions

Aug 22 2012 13:45

Company Data

Lonmin plc [JSE:LON]

Last traded 14
Change 0
% Change 2
Cumulative volume 275418
Market cap 0

Last Updated: 01/01/0001 at 12:00. Prices are delayed by 15 minutes. Source: McGregor BFA


Last traded 340
Change 12
% Change 4
Cumulative volume 574858
Market cap 0

Last Updated: 01/01/0001 at 12:00. Prices are delayed by 15 minutes. Source: McGregor BFA

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London - Platinum touched its highest since early May on Wednesday was set for its biggest weekly gain in 10 months after signs of spreading unrest in top producer South Africa ignited concern among investors over supply, while gold gained for a sixth day.

An outbreak of violence at a mine of Lonmin [JSE:LON] that left 44 dead and dozens injured last week, paralysing production at the world’s third-largest producer, has highlighted the reliance of the platinum market on South African supply.

Miners at Royal Bafokeng Platinum’s Rasimone mine in South Africa were blocked from going to work by colleagues on Wednesday, while Anglo Platinum [JSE:AMS], the world’s biggest platinum producer, said it had received a demand from employees for an increase in wages.  

The 9% rise in price over the last week has made platinum the best-performing precious metal of 2012, after having been outpaced by silver and gold because of investor pessimism over the extent of the slowdown in demand particularly from the auto sector, where it is used in catalytic converters.

“Given that there are a lot of operations in the Rustenburg area, RBPlats, Impala and Lonmin have mines that are quite close together, it’s not surprising to see some spillover of the tensions,” David Jollie, an analyst at Mitsui Precious Metals, said.

“The level of violence is surprising. But the current level of disruption to the platinum markets doesn’t seem likely to put it into deficit, although it will move it closer towards balance,” he said. “But...if demand is still below the level of supply to the market and there is no further disruption... then there is no reason other than nerves and short covering why in the short-term prices should move much higher.”

Platinum’s main industrial application is in autocatalysts in diesel-powered vehicles, for which Europe is the largest market and where the eurozone debt crisis has forced many governments to impose austerity measures that have cut consumer spending, particularly for big-ticket items such as cars.

Surplus persists

The platinum market is expected to show a surplus of anywhere up to 400,000 ounces this year, which is equivalent to nearly 7% of total net demand.

Platinum has traded at a historically large discount to gold this year of more than $200 an ounce. This gap has narrowed in the last week to $125, reflecting platinum’s outperformance over gold, which was also set for its longest unbroken rally in two months.

The gold price is set for a weekly gain of 2.5%, its strongest weekly performance so far this month, driven largely by the euro after media reports that the European Central Bank could act to stem the spread of the debt crisis by capping Spanish and Italian borrowing costs, which are around their highest since the launch of the single European currency.

The central bank has since denied any such plan, but the prospect of more liquidity to lower interbank interest rates has lifted financial markets, pushing US stocks, with which precious metals are strongly correlated, to four-year highs.

Spot gold was up 0.2% on the day at $1 641.34 an ounce, having gained nearly 3% in the last six trading days, its longest stretch of unbroken daily gains since June.

The Federal Reserve will release the minutes of its most recent policy meeting later in the day, which investors will scour for any signal that it intends to buy more government bonds to lower borrowing costs and boost the economy, which has shown an erratic pace of recovery this year.

Gold, which has doubled in price since the Fed first employed this tactic, known as quantitative easing, in late 2008, has remained well off the all-time high of $1 920.30 struck last September in 2012, chiefly because of the lack of clear signals from US policymakers of a resumption in bond buying.

An environment of low interest rates usually benefits gold because it can compete more effectively for investor cash when returns from yield- or dividend-bearing assets such as bonds or stocks tend to diminish.

“People seem to feel that (the prospect) of unlimited QE is stretching out ahead of them and if you think about it, there is ... bad news out there, be it economic or geopolitical tensions but gold doesn’t feel like it’s leading from the front,” Simon Weeks, head of precious metals at ScotiaMoccatta, said.

“It feels slightly sluggish for a market that is supposedly an alternative in the current environment so I’m a bit cautious about getting too bullish about it,” he said.

Gold has risen by 1.7% so far in August, making it the worst-performing of the precious metals, compared with a 7% rise in the price of platinum and palladium and a 5.5% rise in silver.

Silver was up 0.5% at $29.47 an ounce, while palladium rose 1.3% to $629.25.

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