A dire warning from Johnson Matthey sent Palladium to the highest levels since 2011. Bloomberg New reported Palladium reserves in Russia, the world’s largest producer of the metal, are “pretty much exhausted” and sales this year may be only 3 metric tons, according to Johnson Matthey Plc. Russian inventory sales dropped 68% to 250,000 ounces last year from 775,000 ounces in 2011, according to Johnson Matthey. Sales from state stockpiles are expected to range from “zero to several tons” in 2013, Anton Berlin, deputy chief of ZAO Normetimpex, OAO GMK Norilsk Nickel’s sales arm, told RBC TV yesterday. “Maybe 3 tons this year, and that will be it,” Peter Duncan, general manager of market research at Johnson Matthey, told reporters in London today. Three tons is equivalent to 96,452 troy ounces. “Russian state stockpiles have been dwindling and are now pretty much exhausted.” Shrinking Russian stockpiles at a time when output is falling helped send the metal into the biggest shortage in 12 years. Output in South Africa, the second-biggest producer, was disrupted by labor disputes and strikes, while lower grades contributed to a decline in Russia.
The Fed is meeting today. After the last Fed Minutes I wrote that diamonds are forever and we thought that quantitative easing was as well. So much for Federal Reserve transparency, it is very clear after the release of the Fed minutes that the Federal Reserve either misled the market after the last Fed meeting or there is something more sinister going on. In the last Fed Statement, the Fed said quite clearly that that their intention is to keep the target range for the federal funds rate at 0 to 1/4 percent as long as the unemployment rate remains above 6-1/2% or inflation goes above 2%. Traders assumed that that included quantitative easing as the Fed talking about the woes of the fiscal cliff and the turmoil in the global economy would continue to support their dual mandate by continuing purchasing mortgage-backed securities at a pace of $40 billion per month and purchase longer-term Treasury securities at a pace of $45 billion per month.
The assumption was until the Fed dual mandate of employment and inflation was breeched. Now in the Minutes in the same meeting it seems that behind the scenes that assumption may have been mistaken. According to page nine of the Fed Minutes they said that “several others thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013.”
Yes, they said there were concerns about the balance sheet but some might assume it is because they think inflation is going to soar or that unemployment is going to drop. That is assuming that the Fed’s new targets for inflation and unemployment then would be meaningless. Or more sinisterly, perhaps they added that dissension to the minutes to thwart commodity bulls that would go to town driving prices higher. The hope may have been that putting a bit of doubt in the commodity traders’ minds might thwart the commodity bull-run that we have seen in the aftermath of QE1 and QE2.
Of course the Fed also has to worry about a bond bubble.