Gold and silver were steady overnight, as the immediate threat of a shooting war in Ukraine subsided Tuesday. Platinum was moderately higher, while palladium posts strong gains for a second day.
A supply shortage in both platinum and palladium is predicted for this year, even before the mineworker strikes in South Africa, but until now, spot prices have ignored this fact.
The strikes in South Africa have shut down 40% of global platinum production for five weeks, and mining companies are starting to run out of above-ground stocks of ore. Major platinum producer Impala Platinum has invoked force majeure on pending platinum deliveries, citing the extended strike as preventing deliveries scheduled after the end of March.
Palladium is often found with platinum, and South Africa accounts for 38% of global supply. The largest seller of palladium, however, is Russia, which has been selling off Soviet-era stockpiles of the metal. The general consensus in the market is that those stockpiles were exhausted last year. It seems to be the threat of economic sanctions against Russia that finally snapped the PGM market out of its sleep. The combined control over global supplies actually led to preliminary talks last year between Russia and South Africa about forming an OPEC-like cartel for platinum group metals.
Bullets may not be flying in Ukraine today, but accusations are. Russian president Putin calmed markets (including his own) by ending “war games” on Ukraine’s eastern border, and proclaiming that the use of force in eastern Ukraine would be a “last resort.” Russia’s invasion of the Crimean peninsula triggered economic pain on Moscow than any sanctions from the West could have accomplished in one day. The Russian stock market lost $60 billion in value, and the central bank had to spend $11.3 billion just on Monday buying roubles in order to prevent a total currency collapse. As it was, the rouble fell to the lowest rate since Russia defaulted on its sovereign debt in 1998. Had Monday’s trend continued Tuesday, the Russian economy could have been crippled.
While exchanging hot words are better than hot lead, the EU has sent a message to Putin by putting together a $15 billion aid package for Ukraine, and fast-tracking favorable trade status. Putin had offered the former government of Ukraine $15 billion in loans for turning its back on the EU trade agreement, and returning to the embrace of Mother Russia. This is a far safer path than direct sanctions against Russia, as Putin could simply turn off the oil and natural gas pipeline from Russia that western Europe depends on.
Closer to home, ADP reported a mere 139,000 private sector jobs were created in February, against expectations of 150,000. Not only that, they chopped a whopping 48,000 jobs off January’s numbers, to 127,000 new jobs instead of 175,000. The ISM non-manufacturing index, which measures the US service sector, dropped to 51.6, the lowest level in four years. Wall St. opened flat, and promptly dropped on the news, but bounced back to unchanged after everyone decided to blame the snow.
In Europe, composite EU retail sales were reported to have jumped 1.6% in January from the previous month — the best monthly increase since 2002. The Nikkei in Tokyo closed at a one-week high, as the yen softened, helping exporters. Mainland Chinese and Hong Kong stocks dropped, as China’s first private sector bond default loomed. Solar panel manufacturer Chaori Solar said it will not be able to meet interest payments on bonds due on Friday. The solar panel industry in China is extremely over capacity, and exports have been cut due to trade disputes accusing China of “dumping” to force competitors out of the market. This may revive physical gold demand in China that had been muted by the jump in price caused by Ukraine.