Investment in platinum surges in belief South African wage talks will break down says ETF Securities

3rd June 2013

Investors piled into platinum at the start of this week over concerns about industrial relations in the South African mine according to Nicholas Brooks, Head of Research and Strategy at ETF Securities.

In a note, Brooks says Platinum ETPs received the largest inflows in over 8 months on expectations that South African wage talks will break down. “ETF Securities’ Platinum ETPs saw US$28mn of inflows, as the wage negotiation season in South Africa officially started last week. Despite government efforts to prevent union rivalries from exacerbating the already tense situation, investors remain unconvinced.

“With over 70% of the world’s supply of platinum mined in South Africa, supply disruptions and political hurdles in the country can have a big impact on prices. Supply side issues in South Africa are likely to remain an important platinum price driver in 2013. At the same time, palladium ETPs registered US$3.4mn of outflows last week on profit taking. Recent strong price performance has been driven by improving demand, coupled with a sharp reversal of strong Russian palladium exports in April.”

He adds that physical gold ETPs has seen more outflows despite disappointing US growth and jobs data pushed the gold price higher. “ETP investors continued to cut their gold holdings last week, with gold ETPs seeing outflows of US$157mn, as tactical investors took advantage of the recent gains. The gold price rose above US$1,400/oz. for the first time in two weeks, breaking above key technical resistance before fading in early Monday trade”.

In terms of the overview of economic data, Brooks says that tepid economic data from the US eased fears that the Fed will imminently cut back on quantitative easing, sending precious metals higher last week. At the same time, he says mixed data from China kept investors on edge, and weighed on more cyclical commodities such as copper. “With Fed policy so tightly tied to labour market improvements, all eyes will be on the US non-farm payrolls data this week. Last month’s figures surprised to the upside and similarly strong numbers could fuel speculation that the Fed will taper policy stimulus in the near future. However, with long-end bond rates increasing sharply, rising funding costs will likely constrain any near-term tightening from the Fed. Extended gold shorts and continued strong physical demand have the potential to push the gold price sharply higher if payrolls disappoint.”

The full PDF is available here.

28 thoughts on “Investment in platinum surges in belief South African wage talks will break down says ETF Securities”

  1. Anonymous says:

    It’s so farcical that you’d struggle to make it up.

    When they manipulate the market, they reduce it’s abilities to send warning signals. They reduce it’s ability to force errant borrowers to reduce spending. Presumably this will permit worse distortions to occur – and if or when a bust happens the consequences are likely to be more severe.

    All of Monti’s contortions and rule violations in the name of “saving the Euro” are going to destroy it.

    1. Anonymous says:

      Hi ExpatInBG

      In one of Madonna’s songs she sang about the “hard or soft option” and the problem for the central banks is that forever taking the soft option increasingly ties their hands. It is on that road that we end up with negative interest-rates in a lot more than the Euro area.

      What is the Bulgarian response to the news from CCB over the weekend?

      1. Anonymous says:

        Sorry pass, little time to read dodgy newspapers now. Have been studying my OU course double/triple pace, so I can complete the last assignment early – a job opportunity beckons, which cannot wait until October. Plus I used my Sunday for a mountain hike.

        Thanks for your informative and well thought out blog.

  2. Londoner says:

    Human beings are clever but not wise. Cunning but not intelligent. Selfish and greedy.
    That seems to sum up how we have got here to me.

    1. Anonymous says:

      Hi Londoner

      If so there is not a lot of hope for a turn for the better on a consistent basis. We should perhaps expect more “Butler-Schloss” style farces which in truth looks rather along the lines described in Yes Minister.

  3. Englishteacher says:

    Such a shame that in keeping with The Times, Telegraph and BBC, the grammar and spelling of the written word is so poor. It’s time for remedial English classes!

    1. Forbin says:

      reliance on spell checkers is my down fall – after all Rick is a a correct word , just not the the right one – Risk

      Hmm, maybe I’ll just go and play a game of Rick/Risk

      Forbin

      PS: Rick rolled ….oh yes!

    2. Anonymous says:

      Hi Englishteacher and welcome to my part of the blogosphere.

      I note your critique and will try to improve matters.

  4. HarryA says:

    Hi Shaun,

    From what I can see, the short term driver is if you reduce rates and hurt returns from that asset class it “coerces” people to take more risk and generate the same total returns they made before. However the latter return, by definition, becomes more volatile than the former.

    Once investors experience a loss, they rein in their risk appetite and react to lower rates by committing more capital to it. Hoping to get the same absolute yield they earned before. It reduces the amount of capital available to take risk with and brings target returns down across the board.
    It is somewhat akin to crowding out.
    Harry

    1. Anonymous says:

      Hi HarryA

      I agree that there are lots of different impacts which have foiled the plans of the central bankers. People and their psychology changed and the demand and supply curves all shifted. Frankly I am not sure one can sensibly talk of a demand or supply curve now.

      Things changed but the central banks are rather like automatons hoping that someday what they were taught at Harvard will turn out to be true!

    2. Noo 2 Economics says:

      “It reduces the amount of capital available to take risk with and brings target returns down across the board.
      It is somewhat akin to crowding out.”

      In terms of Gilts, bunds, treasuries etc yes but not for equities re target return as companies have to produce better returns to attract scarcer funds. Companies are a lot more profitable now than pre depression – they’ve been forced to be, that and the QE is why markets have risen. P/E ratios in the UK, US and EU are full but not overvalued imo (but that depends on your view of the future which as I’ve alluded to elsewhere today has been guaranteed by the CB’s, obviously they can’t keep the guarantee forever but they can go a while longer yet imo).

      An entirely separate argument would be how they achieved their greater returns – cost cutting and investment reduction mainly which is bad (for investment cuts) in the longer run.

  5. JW says:

    Hi Shaun
    Merely stage 1, next come capital controls and ‘haircuts’, but slowly, gradually, the erection of this ‘jail’ is sometimes imperceptible.

    1. Anonymous says:

      Hi JW

      We will find out more in the responses to the crises at Espirito Santo in Portugal and CCB (KTB) in Bulgaria. So far the countries have been polar opposites with the Bulgarians promising that there will be no losses and the Portuguese saying no state money will be used. One thing we can be sure of is that the state of play will get worse!

  6. GusBmth says:

    Hi Shaun

    Thanks for such a detailed and sobering analysis.

    It seems to me that this state of imbalance carries with it a significant systemic risk, but that many people mistakenly believe that that risk is offset by the explicit backing of the state and central bank of the banking system.
    But following the last financial crisis, the government’s total debt has ballooned and it still has a high yearly deficit. Its ability to bail out the banking system in the same way again is now dramatically reduced. Also, interest rate policy has reached and exceeded its effectiveness.

    Ultimately then, it is the central bank’s willingness and ability to create huge amounts of liquidity, both to buy government debt and to keep the banking system afloat, that underpins the whole system. But there must be limits to how much liquidity the bank can create. I guess we’d be in uncharted territory to envisage further rounds of QE, but has anyone done any work on this? Conceptually, the central bank cannot create unlimited liquidity to buy its own government’s debts, without reaching a crisis point. Of course similar conditions apply in the US and the Euro area, which is what makes this experiment in new monetary policy so scary.

    1. Noo 2 Economics says:

      “But there must be limits to how much liquidity the bank can create. I guess we’d be in uncharted territory to envisage further rounds of QE, but has anyone done any work on this?”

      And:
      “Conceptually, the central bank cannot create unlimited liquidity to buy its own government’s debts, without reaching a crisis point.”

      The work is already under way in Japan and to a much lesser extent in the US – they will provide the answer, keep watching them.

      1. GusBmth says:

        As you point out elsewhere, ‘Japan is a disaster waiting to happen’. Should that come to pass, then it would have both a direct impact on the world economy and financial system, and an indirect impact, through providing evidence of the potentially disastrous risks of the ‘endless liquidity’ model of central banking.
        As you say, we should keep watching Japan in particular.

        I think what Shaun is identifying is that the policy response to one crisis is laying the ground for the next.

        1. Noo 2 Economics says:

          Ever twas thus, remember the money taps being turned on in the late 80’s? That time the result was increasing inflation which was attacked with stupidly high interest rates resulting in the bust of the early 90’s as sooo much money was then sucked out of circulation and the UK govt struggled with the interest rate burden on it’s debt (which is way higher now as a % of GDP then it was then). The authorities have learnt from that and are trying not to repeat the same mistake by keeping rates “lower for longer” and printing more money rather than borrowing (although they are of course still borrowing more but not as much as they would have to without QE).

          This time the money taps have been turned on resulting in… low inflation, each time the response is the same but yields different results because circumstances never exactly replicate the past. In the 80’s it was about increasing velocity of money, now it’s about money velocity slowing and emerging markets competition driving prices down- that’s what the authorities don’t get.

          The threat now is falling global GDP as falling inflation takes it’s toll and as Shaun has said in the past, you get less bang for your buck as QE continues (at least when set against a back drop of slowing money velocity) the real challenge for an investor lies in second guessing when and how the next collapse will happen and positioning yourself accordingly.

          The challenge for the advanced Govts and economies is addressing structural problems 35 years in the making of lack of workers with relevant training and skills and too highly priced property. All the money printing in the world won’t address that, but in the meantime we have to deal with the present whilst we should be preparing for the future 20 years away, but the authorities look to get through the next 12 month period which brings me back to the beginning of this post – ever twas thus.

          1. Noo 2 Economics says:

            By the by, Shaun’s article raises many questions to me but his original question was where do risk averse yield seeking investors go now with the implication of his blog being – nowhere unless they want to “take risk”.

            My earlier post about where I am as a risk averse investor is an answer to that question and a challenge to conventional “risk” thinking as I state I am still risk averse but have adapted to new circumstances realising that in this new world if you go where the central banks are trying to go/pushing you to go you have minimised your risk profile. Stubbornly stick to the old textbooks that “gilts/bonds are safest” and you are taking immense risk when looking at the already very high valuations and guaranteeing yourself losses by sticking with gilts. The next best thing is dividend yielding equities, more volatile than sovereigns (where your losses are guaranteed) but the sovereigns will suddenly collapse price wise adding to your already guaranteed losses.

            In other words the whole definition of “risk” has gone up. Think your cash is safe in the bank? Don’t fool yourself look, at what happened to depositors in Cyprus, authorities are looking at that example very closely, the IMF has already applauded that approach and is talking about work being done throughout the EU to enshrine bail- ins into the new resolution system proposed for the EZ banking union towards which they are working. Global authorities will take that as official permission that it’s OK to raid deposit accounts when the next crash comes – so what use cash over investments then?

  7. Pavlaki says:

    As one of the newly semi retired I have indeed taken a substantial hit on savings and pension income. My reaction is to reduce discretionary spending to a level I am comfortable with which is the opposite of what is expected. From my discussions with folk in similar circumstances this is what everyone is doing. As we are always told that savers outnumber borrowers surely this is counter productive? A higher savings rate and lower inflation rate would encourage us to spend on services, new vehicles refurbishing our houses etc which would quickly translate into raised GDP. For some reason the opposing logic appears to prevail!

    1. Eric says:

      Absolutely, I think savers faced with lower returns only tend to save harder – just the opposite of Charlie Bean’s expectation. Perhaps Charlie has never had to rely on his savings interest.

  8. Eric says:

    Hi Shaun, Thanks for your depressing piece. The real meaning of risk really came home to me when I moved cash in the bank generating 1.0% AER to “carefully selected low risk investments” (my IFA’s words) only to find, 3 years later, that I would have been better off leaving the money in the bank. And If I take “charges” into account it’s very obvious I’m giving my money away! SWMBO says at my age I should know better. Gee.

    1. Anonymous says:

      Hi Eric

      I am intrigued because most things have gone up, how did they manage that? Is it too cynical to blame the charges?

      1. Eric says:

        Most things have gone up Shaun, but not everything! It’s still possible, even in this day and age, to make a total mess of things (ask Mervyn!)…. I’m just praying that my personal finances don’t get so bad that I need to be rescued by the Troika; but I’m looking through this temporary albeit protracted drop in my wealth and I’m on track to make a full recovery by 2037 – just short of my ninetieth birthday.

  9. Noo 2 Economics says:

    Hi Shaun,
    That would probably be me you’re referring to. I was happily in sovereigns prior to 2008, left with fright, then piled back in in 2009. I steamed into corporate paper and “income” OEICS and IT’s (some dividend yielding shares and corporate bonds and others mainly dividend yielding shares only) when I saw how cheap the market was (I knew things weren’t that bad at end 2008/early 2009).

    I ran away from from sovereigns in 2010/2011 as the scale of the Brown folly dawned on me and dumped all my corporate paper in 2011/2012 on valuation worries (although I note they have continued to climb higher since) and now sit in pretty much the same income finds I’ve been in since early 2009 and very nicely I’ve done thank you CB’s of the world, because that’s exactly what I’ve been doing – listening carefully to the CBer’s and gaming them.

    I wouldn’t touch sovereigns/corporate/high yield with a barge pole now – way too frothy although they still continue to defy gravity, but the CB’s have made it clear, to paraphrase a certain gentleman they’re going to do “whatever it takes” to support markets although it’s going to be slower going now for them and the markets.

    So there you have it, these arer the places this risk averse investor has been and is currently. Why do I think my actions have been low risk? Because I’ve got the CB’s on my side.

    Oh and Japan I’m not sure about their antics, money supply hasn’t grown much in spite of their shenanigans, probably because the Japanese banks are busily selling their holdings back to the Japanese Central Bank almost as fast as it’s issuing new ones – a catastrophe waiting to happen, never went near that and look how much I missed out on, but I’d rather be able to sleep at night.

  10. dannyboy says:

    Noting the immediacy of the impact on those coming up to retirement today, by the time I end up as a pensioner (I can only guess what age that will be) we’ll look back at the times of generous final salary schemes and high growth defined contribution schemes and see them as a historic anomaly. I honestly doubt we’ll see returns above inflation like we have for the last 50 years for a long time, if ever again. However, my pension statement still makes an optimistic assumption of 7%, extrapolating past performance well into the future, and if I believe it then I can feel richer than I am for a moment! Humans just don’t understand non – linearity until it’s right in front of us, and this whole period in economic history is, in my perhaps ill informed opinion, us all getting comfortable with a new low return world, and coming to a collective realisation that we’re not as wealthy as we thought we were (unless you’re the 0.1% in which case it’s been a rather productive period indeed).

  11. Robin B says:

    Hi Shaun,
    A bit off topic, but did you catch the Radio 4 Analysis programme last night (The end of the pay rise?) which looked at recent trends in falling real wages and in the reduction in productivity in the economy – both regular topics on this blog. Sadly, the programme relied heavily on two main “experts”, Messrs Haldane and Sentence, so we got the establshment view (as usual). Of course, economic policy has had nothing to do with these issues!

  12. theyenguy says:

    You ask where do investors go? To answer that please consider investment reality.
    On Tuesday, July 15, 2014, Fed Chairman Jane Jellen spoke in Semiannual Monetary Policy Report To Congress, and stocks, commodities, bonds, and currencies all traded lower, evidencing the failure of fiat money.

    Debt deflation is underway as Credit Investments, AGG, traded lower, as the Interest Rate on the US Ten Year Notes, ^TNX, traded higher from its Friday July 11, 2014, value of 2.52% to 2.55%; thus evidencing that the bond vigilantes are in control of Interest Rates worldwide.

    Major World Currencies, DBV, were led lower by the Canadian Dollar, FXC; and Emerging Market Currencies, CEW, were led lower by the Brazilian Real, BZF.

    On July 2, 2014, the failure of credit commenced as Aggregate Credit, AGG, traded lower in value.

    On Monday, July 7, 2014, the destruction of fiat wealth commenced, as risk-on investing turned to risk-off investing, with World Stocks, ACWI, Nation Investment, EFA, Global Financials, IXG, and Yield Bearing Investments, DTN, all trading lower from rally highs, as investors fear that the monetary policies of the world central banks no longer stimulate investment gains nor global economic growth.

    On Tuesday, July 15, 2014, the death of currencies commenced as is seen in the Commodity Currencies, CCX, such as the Canadian Dollar, FXC, the Euro, FXA, and the Australian Dollar, FXA, trading lower, on fear that the monetary policies of the world central banks have crossed the rubicon of sound monetary policy and have made money good investments bad.

    One should not be invested in Equity Investments, Nation Investments, Banking Investments, Yield Bearing Investment, or Credit Investments, as the death of Sovereign Currencies, commenced on Tuesday July 15, 2014, after Janet Yellen spoke in Semiannual Monetary Policy Report To Congress.

    Fiat Money, defined as the combination of Credit, AGG, and Major World Currencies, DBV, and Emerging Market Currencies, CEW, died on Tuesday July 15, 2014, as investors fear that the monetary policies have crossed the rubicon of sound monetary policies and have made money good investments bad.

    It may be that Gold will be trading lower in value, as it does, one should be dollar cost averaging into the physical possession of gold bullion, as it is the only safe asset and will eventually be trading higher as all fiat assets trade lower in value. Gold is in the middle of an Elliott Wave 3 Up, these are the most dynamic and sweeping of all economic waves, as they move higher to their Elliott Wave 5 High.

    One should not be invested in Equity Investments, Nation Investments, Banking Investments, Yield Bearing Investment, or Credit Investments, as the death of Sovereign Currencies, commenced on Tuesday July 15, 2014, after Janet Yellen spoke in Semiannual Monetary Policy Report To Congress.

    Fiat Money, defined as the combination of Credit, AGG, and Major World Currencies, DBV, and Emerging Market Currencies, CEW, died on Tuesday July 15, 2014, as investors fear that the monetary policies have crossed the rubicon of sound monetary policies and have made money good investments bad.

    Please consider that given that Fiat Wealth, That Is The Coinage Of The Banker Regime, Is Trading Lower In Value, The World Has Pivoted Into Kondratieff Winter.

    The failure of credit, which occurred on July 2, 1014, and the death of currencies, which occurred on July 15, 2014, are dual extinction events, which will rapidly make the investor extinct.

    The Bond Vigilantes, being in firm control of The Bow of Economic Sovereignty, that is the Benchmark Interest Rate, will be calling Interest Rates higher worldwide, introducing political coup d etats; out of which the new money, diktat money, defined as the mandates of regional leaders for regional security, stability, and sustainability, will underwrite regional fascism replacing today’s crony capitalism, socialism, and communism.

    Inasmuch as destructionism is replacing inflationism, the economic future is one of global economic deflation, and rising headline price inflation.
    So to emphasize, one should start to dollar cost average into the physical possession of gold bullion, store it in multiple safe places, and cover it with an insurance policy

  13. Anonymous says:

    Hi Forbin

    We are seeing the law of unintended consequences as one central planning move clashes with another. Is fraud still an offence at the top level? I know of people at the bottom end who get prosecuted but at the upper end there is a distinct shortage.

    By the way corn for your popcorn has dropped below US $4 on futures markets. For once a bear market which is welcome..

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