Metals market attention shifts to China

In The Lead: “How Sweet Is IT?”

The latest CFTC market positioning reports show that net spec length in gold gained for a fourth week last week, while in silver the net spec length as a percentage of open interest is indicating a market that is — in the words of Standard Bank analysts — “becoming overstretched.” The specs do not appear to be particularly bullish on platinum, despite the developments you can read about below, and the specs in palladium decreased positions by almost 16,000 ounces.

Platinum fell $9 to $1,696 while palladium dropped by the same amount to the $686.00 per ounce level. Rhodium was ahead another $25 to reach $1,325 per ounce on the bid-side. Mining group Lonmin revised its forward-looking platinum sales forecasts owing to the on-going labor strife at its Marikana mine in South Africa. Workers at that mine rejected a wage offer on Friday and remained above ground. On Saturday, local police used stun grenades and rubber bullets to disperse a crowd of about 1,000 protesters gathered near that facility.

Albeit the sales projection cuts made by Lonmin amount to between 50 and 65 thousand ounces for the year that ends this month, the PGM market is still very concerned about output for the noble metal and are quite aware of forecasts for significantly higher prices in months to come, should the troubles down in South Africa persist. That country sill mines 80% of global platinum supplies.

The South African government has vowed to halt all illegal protests and to disarm strikers who have halted production at one gold and six platinum mines across the country recently. CPM Group analysts fear that the political and labor issues have no quick solution at hand and that the platinum market is not only no longer oversupplied but is in a tighter balance than commonly estimated.

Well, it did not take long for the QE3 post-mortems to make their way into the mainstream media. The downgrade of US government debt from AA to AA- by rating agency Egan-Jones (made in the wake of the QE3 news) prompted a plethora of politically-tinged chatter from both sides of the proverbial isle. Senate candidate Heather Wilson (R- NM) issued a scathing attack on “Helicopter Ben” and accused the Fed Chairman of doing nothing more than rescuing Mr. Obama and not the US economy or workers.

Ms. Wilson notes that QEs I and II do not appear to have done the job that they were intended to (putting money into the hands of lenders who would in turn help grow the US economy) and she concludes that “The truth is that both Obama and Bernanke are running out of options. A $16 trillion debt has left the federal government with no fiscal flexibility at all, and the Fed’s usual tools to manipulate money through interest rates are useless with those rates close to zero. QE3 isn’t a new hope for the economy; it’s a clear sign of desperation.” Ms. Wilson sees Mr. Bernanke as being left with “nothing” after the “sugar rush wears off.”

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