Platinum supply: when will challenges drive prices higher? :: Macquarie Research

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Platinum supply: when will challenges
drive prices higher?
Feature article
 Platinum has underperformed in the precious metals space and the
commodities complex in general, despite the general consensus that today’s
prices of precious metals in Rand terms are unsustainable in the longer run.
 But despite all the challenges on the cost/production side in South Africa, the
market appears to be adequately supplied at the moment. This partially
appears to be due to metal in the pipeline covering for weaker operational
performances, but it is not clear that supply side problems will drive pricing
higher on a 6-12 month view.
Market wrap
 There have been several events driving precious metals markets over the
past couple of weeks, which have propelled gold to new highs of $1,614oz on
the PM fix. First are greater signs of stress in Euro area debt markets, with
Italian bond yields coming under attack. This issue has simmered with the
release of details for greater funding for Greece and plans for an expansion of
the EFSF.
 Second was the shift in rhetoric from the Federal Reserve in recent
commentary, with FOMC chairman Ben Bernanke stating further quantitative
easing could be introduced if the recovery continues to be subpar, although
there was no suggestion that this was imminent. Both these issues, however,
have been swamped by the debate and impasse surrounding the need to
increase the US debt ceiling before the August 2 deadline.
 There have been two interesting features of precious metals markets since
these issues have been driving markets. First, there has been a shift from the
recent trend of gold’s performance against the US$, with gold trading higher
without the dollar trading lower. Gold is up ~7.7% from the recent low of
below $1,500/oz, while the DXY is unchanged.
 Second, while gold has attracted most of the attention, the white metals have
also been higher over the past few weeks. In fact, silver has continued its run
of astonishing performances, rising almost 20% over the same period, while
platinum and palladium are up 6.7% and 10.9%, respectively.
 ETF inflows have been considerably stronger of late, particularly in the case
of gold. Total holdings to 22 July were up 1.7moz since the 27 of June, with
ETF interest the strongest it has been all year. Silver ETF holdings have also
lifted, although interest in the PGMS appears muted.
 The degree to which the US debt ceiling debate can continue to drive the gold
market higher is questionable given the proximity of the deadline, as either a
compromise is found and the issue is at least more resolved than it is now, or
there is a default which would likely cause a dislocation in financial markets
which wouldn’t be positive for gold.