Macquarie Research:: Pulse --Taking a closer look at the golden rules

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Precious Pulse
Taking a closer look at the golden
rules
Feature article
􀂃 Two generally accepted stylised facts about gold prices are that they are
negatively correlated with real interest rates (usually seen as US$ rates) and
that they are positively correlated with financial distress. The experience of
the last 10 years suggests these rules of thumb may not hold and need to be
compliment by looking at broader conditions.
􀂃 First, events outside of the US appear to be more important in providing the
step changes in the way gold is behaving. Second, this is necessarily due to
financial distress, with gold performing strongly when risk globally was
perceived to be low.
􀂃 This is important in the context for the outlook for gold over the next 12
months, especially on the context of monetary policy. A change in tack from
the Federal Reserve is seen as the crucial turning point for gold, but recent
history suggests that this is only important in what is happening elsewhere.
Market wrap
􀂃 Precious metals prices have been stronger over the last few weeks despite
little interest via ETF investment and a mixed picture from the Commitment of
Traders Reports (COTR). Economic data was on largely on the brighter side
until the poor non-farm payrolls data for June, while the market saw temporary
reprieve from the Greek sovereign debt issue with fresh funding from the EU.
Gold still managed to strengthen through the week despite a mostly stronger
US dollar, while silver continues to hold up fairly well after the dramatic fall at
the end of March.
􀂃 Platinum and palladium have picked up off their recent lows, up 3.6% and
7.2% respectively from the 27th of June. Rhodium, however, currently
remains stuck around the $2000/oz. Newsflow on the PGM space is set to
pick up in the coming weeks, with the major South African producers to start
reporting for the June ending period next week. Angloplats providing a
trading update, expecting better HEPS in 1H11 on better Rand PGM prices.
The Rand PGM basket price is up 9% compared to 2H10, although this is
largely due to rising prices through the later stages of last year, with PGM
pricing largely unchanged since the start of this year.
􀂃 Wage negotiations in South Africa continue, with gap between the unions and
the miners remaining wide. Unions are looking for increases of salary
increases and other benefits in excess of 20% YoY, will the miners have
offered increases closer to the current inflation rate of 4.6%YoY. The National
Union of Mineworkers is currently voting whether workers at Angloplats will go
on strike given the failure to reach an agreement.
􀂃 The Chinese Association of Automobile Manufacturers reported PV sales
grew 4% YoY, with total vehicles rising 3% YoY. This is a strong result after
the falls in May and suggests the market is recovering from supply
disruptions.