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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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