Bernanke will hint at QE3 tomorrow. Remember, the recovery needs to stay on track. He will not come outright and say it though, because the Algo Machines from Hell that run the financial system for the oilgarchs needs one last pullback so as to separate the corporate Dinosaur Kings from the lower classes.
The bottom of support on the Dow will be tested over the next week; it will slide back to 11,950. The dollar will rise a tad, almost seeing DXY 76. Oil will scrape its recent low, hitting $92/barrel. Precious metals will move down, if only slightly: gold will stay the strongest, as it will continue to beat up on the fiat currencie; it will keep around $1530. Silver will drop a little, as it has yet to take its place as a reserve; it will test its support around $35. Platinum will continue to wallow at the bottom of its long term range; it will touch $1730. This will be the last pullback before QE3 is announced.
QE3 should be announced after this pullback, so to keep the recovery on track. Neither Bernanke or Obama will admit their policy a failure. They will bail out and monetize until the problem is passed on.
As you may know, I'm a huge fan of platinum. Here is some info I got from an IR person in South Africa themselves. This is straight from the horse's mouth so to speak.
ReplyDeleteAny thoughts?
Happy to help. I am not sure where your information comes from but 5 metric tonnes of platinum is 160,000 ounces. There will be a surplus of platinum this year, but nothing like as much as that. It is more of the order of 20,000 ounces (0.6 metric tonnes).
There has been a surplus since the 2008 financial crisis, as labour unions in South Africa make it difficult to reduce production in response to poor market conditions. Platinum recovers late in the economic cycle, as it is used in consumer good such as cars and jewellery. The automobile industry has not recovered to pre-crisis levels yet, and investment demand (ETFs and your platinum bullion) have made platinum too expensive in dollar terms for much jewellery demand to survive.
However, the labour conflicts and increasing depth of the mines that you have heard about do exist, along with many other supply-side issues, and what that means is that the industry as a whole will also struggle to increase production when it needs to. Labour is a universal problem but Aquarius is afflicted by the other issues (depth etc) to a significantly lesser degree than its peer companies. At the same time, fundamental demand for platinum is improving all the time; for example China will require all of its cars to be fitted with modern PGM catalysts over the next 12 months, while Europe and the US are slowly getting back to pre-crisis levels of car sales. This means that in the medium term, platinum will be in deficit once again. More demand and no possibility of materially increased supply means that the mid-term outlook is exceptional for these metals; but in the short term there is a slight surplus. My personal view is that platinum (and Aquarius in particular) are very good investments, but require a longer-term investment horizon, for all these reasons.
This is a complex topic and I have given you a relatively brief answer. I highly recommend that you visit Johnson Matthey’s platinum website, www.platinum.matthey.com for a more in-depth view. Their research and reports are extremely useful and comprehensive.
Also this...
ReplyDeleteQuite interesting how they predict these numbers. I'd be very curious to see where they come up with them. IT DEPENDS VERY MUCH ON HOW THEY CLASSIFY THE VARIOUS ASPECTS OF PLATINUM DEMAND. I SUGGEST IGNORING PRESS AND BLOOMBERG REPORTS ENTIRELY, IN FAVOUR OF REPORTS BY JOHNSON MATTHEY. THEY HAVE THE BEST INSIGHTS INTO THE PLATINUM MARKET.
As much as the automobile industry has not recovered, do you feel that all the new sales in China and India will make up for lost sales in the West? NO. SALES IN THE WEST ARE RECOVERING SLOWLY TO PRE-CRISIS LEVELS, BUT IN THE SHORT TERM THERE ARE SIMPLY FEWER CARS THAT USE PLATINUM BEING PRODUCED. WHAT WILL HAPPEN IN FACT IS THAT IN 12 - 18 MONTHS OR SO, WESTERN CAR SALES WILL BE BACK TO PRE-CRISIS LEVELS AND SALES IN CHINA AND INDIA WILL BE TAKING OFF, LEADING TO A SPIKE IN DEMAND FOR PLATINUM WHICH WILL NOT BE MET BY MORE MINE SUPPLY - SO PLATINUM PRICES SHOULD ESCALATE MATERIALLY.
Along with that, I am seeing that diesel is becoming more and more popular in North America with rising fuel prices, and platinum is used more in diesels than unleaded vehicles, right? That would impact sales as well, right? CORRECT ON BOTH COUNTS, AND ALSO THE US AND EUROPE ARE BOTH CATALYSING HEAVY TRUCKS FOR THE FIRST TIME, ALL OF WHICH ARE DIESEL. AGAIN IT WILL TAKE SOME MONTHS FOR THIS EFFECT TO SET OFF THE OVERSUPPLY THAT RESULTED DURING THE CRISIS. THE MEDIUM-TERM DEMAND OUTLOOK IS EXCELLENT, BUT IN THE SHORT TERM THERE IS SLIGHTLY TOO MUCH METAL TO BE HAD.
one last one...
ReplyDeleteDo you have any thoughts on what might happen to platinum prices, production and investment in future mines if the Rand continues to strenghten against the USD, essentially eating at any gains that might be attained due to spot prices rising? WE (AQUARIUS) HAVE RECENTLY ANNOUNCED THAT WE ARE NOT OPENING A MINE THAT WE HAVE BEEN DEVELOPING. IF THE RAND GETS STRONGER, EITHER DOLLAR PGM PRICES NEED TO GO UP, OR THE INDUSTRY WILL DIE - NO INVESTMENT, EXISTING MINES WILL BE CLOSED, AND THERE WILL BE NO GROWTH IN PRODUCTION. YOU HAVE TO REMEMBER THAT THE INDUSTRY CANNOT BE ALLOWED TO DIE, HOWEVER, AS DEMAND FOR PLATINUM IS LEGISLATED ACROSS THE GLOBE, IT IS NOT A DISCRETIONARY PURCHASE. AS A RESULT THE ONLY PRACTICAL OUTCOME IS THAT DOLLAR PRICES MUST RISE. THERE WILL BE A FEW MORE MONTHS OF PAIN FOR THE INDUSTRY, BUT AS DEMAND TIGHTENS, PRICES IN RAND MUST GO UP.
I'm not really where you are, so all the news I get is from what I read. Can you tell me first hand how bad the labour situation and electricity supply situation is; do you expect any significant losses in production with Aquarius or any other big miner due to either of these? I CANNOT SPEAK FOR THE OTHER MINERS BUT WE DON'T ANTICIPATE LOSING ANY PRODUCTION DUE TO LABOUR OR ELECTRICITY. STRIKES ARE A RISK, BUT WE DO OUR BEST TO AVOID THEM. THE UNIONS ARE VERY STRONG AND IT IS NOT AN EASY OPERATING ENVIRONMENT AS A RESULT. ELECTRICITY IS IN SHORT SUPPLY AND DURING THE NEXT TWO WINTERS THERE COULD BE BROWNOUTS. THESE WILL EFFECT OUR DEEPLEVEL PEERS MORE THAN THEY WILL EFFECT US, BECAUSE WE USE MECHANISED MINING (DIESEL, NOT ELECTRICITY). OF MORE EFFECT WILL BE THE COSTS OF BOTH. LABOUR COSTS WILL CONTINUE TO INCREASE AT DOUBLE THE INFLATION RATE, AND ELECTRICITY IS GOING UP AT 25% PER YEAR. THIS PUTS PRESSURE ON MARGINS AND WILL RESULT IN MORE UPWARD PRESSURE ON PGM PRICES.
If there is a recession and car sales slow, do you see platinum strength continuing with gold, if gold were to continue upward? SOME PEOPLE HAVE THIS VIEW. I DON'T, HOWEVER. PLATINUM IS NOT A 'STORE OF VALUE' LIKE GOLD. IT IS A RARE INDUSTRIAL METAL RATHER THAN A PRECIOUS METAL. WHEN INDUSTRIAL DEMAND SLOWS, THE PRICE COMES DOWN.
One last opinion, I promise. What heights might you see platinum hitting in the next 1-2 years? My investment in the company is long term, however, my bullion is a hedge for which I hope to use to buy a house. I CAN'T OFFER YOU INVESTMENT ADVICE, BUT I CAN EXPLAIN HOW WE THINK ABOUT PRICES. WE THINK OF THE PRICE IN RAND, NOT DOLLARS. I DON'T KNOW WHAT IS POSSIBLE, BUT OUR VIEW (HELD BY MOST OF THE INDUSTRY) IS THAT THE RAND BASKET PRICE FOR PGMS NEEDS TO BE AROUND R14,000/OZ FOR THE INDUSTRY TO MAKE SUFFICIENT RETURNS TO INVEST IN GROWTH. AT THE MOMENT IT IS R10,500 - SO THE PRICE IN RANDS NEEDS TO RISE BY 30-40% FROM THE CURRENT LEVEL, I EXPECT DURING THE NEXT TWO YEARS, IN ORDER FOR THE INDUSTRY TO BE ABLE TO MEET INCREASED GLOBAL DEMAND. WHETHER THIS COMES FROM RAND WEAKENING OR DOLLAR PRICES RISING IS ANYONE'S GUESS. I IMAGINE IT WILL BE A COMBINATION, BUT MOSTLY FROM THE DOLLAR PRICES. IT ESSENTIALLY HAS TO HAPPEN - THE ONLY DIFFICULTY IS PREDICTING PRECISELY WHEN. BY THE WAY, A BASKET OUNCE IS 60% PLATINUM, 29% PALLADIUM, 10% RHODIUM AND 1% GOLD, WHICH IS HOW THE METALS COME OUT OF THE GROUND NATURALLY. THE RAND BASKET PRICE IS A WEIGHTED AVERAGE OF THE DOLLAR PRICE OF THOSE METALS MULTIPLIED BY THE RAND DOLLAR EXCHANGE RATE.
Thanks for all the info, Jack! Great stuff.
ReplyDeleteWhen I call price on the short term, I am doing it merely by the charts. Long term, I am counting on a Central Bank using platinum as a reserve. This may have already happened when Zimbabwe issued platinum as debt a few weeks ago. I also want big monie to move on it. I think its market could easily be cornered.
Platinum may be an industrial metal, but it is a precious metal. And this will be its greatest comeuppance: at some point the bullion will be put in a Central Bank and it will officially be seen in finance as monie. But this has not happened yet.
As for industrial demand, I don't think car sales will get close to what they were. I think oil prices will only go up from here, due to oil supply and dollar devaluation, and I think that will suppress demand for cars. Jewelry should stay steady, as the rich are the only ones who will buy it, and the rich ain't going nowhere.
Thanks again for the posts! Great stuff.
NO QE3 YET!
ReplyDeleteAs posted.
QE Light was announced today. It continues....
ReplyDelete