Gold/Platinum Ratio Continues to Search for Peak

 
on August 16 2012 8:14 AM

Commodity prices traded narrowly in European session as investors got few hints regarding central banks' monetary stance in coming months. Gold continued to fluctuate around 1600. In the near-term, we do not see much breakthrough without fresh news of further easing from the Fed and the ECB. Fundamentals are indeed putting downward pressures on the yellow metal as demand slipped amid worries over global economic slowdown and sovereign debt problems in the Eurozone. Platinum continued to consolidate around 1400. Recent violence in South African miners might after production but the impact would not be significant enough to reverse the surplus situation in the platinum sector.

The latest report from the World Gold Council unveiled that demand for fold dropped more than -7% to 990 metric tons as investment and jewelry demand dropped -23% and -15% respectively in 2Q12. Imports by India alone plummeted -56% in 2Q12. The Council anticipated a recovery in consumption in China and India in the second half of the year due to improvement in global economy and festive seasons in India. In our opinion, while demand may grow in the second quarter when compared with the first quarter, it should contract when compared with the same period last year.

Gold-to-platinum ratio continued to climb higher to uncharted territory as substitution in autocatalysts and economic contraction in Europe have hurt platinum demand severely. With above-ground stocks staying at all-time high, the noble metal is expected to record surplus for the 8th straight year. The latest news about miners is the violence in Lonmin's platinum mines in South Africa. Clashes between unions have resulted in death of at least 9 people including 2 policemen. This followed conflict between unions at Impala's operation mines. Violence and strike would inevitably lead to supply disruption. It's expected that the incident would cause a drop of 80 - 100K oz of output in Lonmin's mines. If the situation spread to other miners, the loss might increase to 200K oz. Yet, the decline in production is not expected to affect the demand/supply balance for the year much. That is, while platinum price may be lifted higher in recent days, the medium-term outlook would remain weak.

On the dataflow, retail sales in the UK beat market expectations, gaining +3.3% y/y in July, following an upwardly revised +3.3% growth in June. The Eurozone's CPI stayed unchanged at +2.4% y/y in July, inline with consensus. From a month ago, inflation slipped -0.5%, following a -0.1% drop in June. Yet, this came in slightly better than expected. In the US, initial jobless claims probably added +4K to 365K in the week ended August 11 while the Philly Fed survey improved to -4 in August from -12.9 in July.

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