The analytical team over at Standard Bank (SA) noted in this morning’s commodities report that “[gold] physical demand remains relatively light, although we have seen a pick-up in Indian buying ahead of the upcoming religious festivities. However, as we’ve highlighted before, the weaker rupee is dampening this demand, and we don’t expect it to provide the same measure of support that it has in previous years. Chinese demand for physical gold has been fairly strong this week ahead of New Year celebrations which begin 23 January.”
Silver dropped a penny to open at $29.36 the ounce. The picture was mixed in the noble metals’ space where platinum was unchanged at $1,412.00 but palladium fell $11 to the $628.00 mark per ounce. Subsequent market action had gold slipping by $5 to $1616, silver falling 44 cents to $28.93 and platinum and palladium recording losses of $13 and $15 respectively. Background metrics included a half-dollar gain in crude oil (quoted at $102.29 per barrel basis WTI) and a small climb in the dollar index (to 80.91). US equity futures greeted the Labor Department’s good news with additional gains. However, those gains did not translate into a good initial half-hour for the Dow; it lost 67 point to fall to 12.348.30 at last check.
Speaking of market metrics, the most recent CME statistics show some heavy-duty increases in the volume of precious metals contracts that were traded last year. While gold contract volume surged 9.9% to more than 49 million, silver contract volumes spiked 52.9% higher and tallied over 19.5 million. NYMEX platinum and palladium contract volumes experienced a 34 and 26 percent expansion respectively. The real doozy however took place in the COMEX E-Micro gold contract niche where volume went from 23.5K contracts traded in 2010 to nearly 475K in 2011 (a 1,916% jump). With gold prices having been where they have over the past three years, the addition of a ten-ounce contract by the CME could not have been timelier. Small investors have obviously rejoiced.
Meanwhile, the continuing discount in platinum versus gold price is prompting spread-trading aficionados to alert unaware investors to an opportunity that basically has not been on the scene in nearly three decades. The larger than $200 inversion in platinum’s value (as against a historical premium of from $200 to $400) vis a vis gold is still manifest despite the ten-fold higher gold production figures and the 35-fold more rare total available supply that platinum enjoys. Given the intensity of platinum-group metals usage in the automotive niche, it is worth mentioning once again that –for example-US car sales, which had fallen from an annualized level of 16 million in 2005 to 9 million during the financial crisis, have returned to the 13 million mark last year and are still aiming for higher ground in 2012.
Recent Barclays Capital projections have platinum potentially reaching a $1900 pinnacle during the course of this year. On the other hand, Deutsche Bank opines that the discount to gold might stay with us for another year and a half. Platinum is believed to have closed out 2011 with a small, 195,000 ounce surplus condition. As well, Deutsche Bank believes that palladium might be the “better pick” in the noble metals’ space as far as investment opportunity in 2012 is concerned. For our money, a bit of both (plus some rhodium) might not hurt in rounding out an already existing core gold allocation.
We close this week with a fascinating Bloomberg piece on the aging of China. It has often been said that China might grow old before it grows wealthy. Reading this captivating yet also devastating article should be worth your while sometime this coming weekend. Not everyone is facing a Happy Year of the Dragon.
Jon Nadler is a Senior Metals Analyst at Kitco Metals Inc. North America