Gold is testing an important support level at $1,262 this morning after dropping to a 3-1/2 month low yesterday.
Gold (and silver) had worked it way into a tight corner in a triangle pattern over the last month, where the price had to give way either up or down. Paper speculators waited until the expiry on June options had been cleared on Tuesday before selling into the market. Curiously, the gold ETFs bought the dip yesterday, signalling that this may be a short-lived correction.
Platinum, which had trended lower overnight in sympathy with gold despite market fundamentals, was subject to a large “not for profit” sell in the early morning hours in New York, driving the price down $10, but is recovering. Palladium and silver are steady this morning.
Upbeat economic news from the U.S., and Russia refraining from armed intervention in Ukraine as the new government combats rebels, led to a “risk on” day in the markets. The dollar has been helped by the imminent announcement of quantitative easing by the European Central Bank, which is depressing the formerly strong euro. The common currency is now near three-month lows.
Speaking of platinum, the mining strike in South Africa’s platinum sector has entered its fourth month. The new Minister of Mines of South Africa has pledged to personally mediated stalled talks between producers and the striking AMCU union, as the strike has caused the national economy to contract 0.6% in the first quarter, and threatens to plunge the nation into its first recession in seven years. TDS Securities has joined its voice to the chorus warning of shortages in platinum and palladium, estimating a 1.2 million ounce shortfall in platinum supply, and a 1.6 million ounce shortfall in palladium supply.
Signs are that the Russian government has about exhausted its Soviet-era strategic palladium stockpile. Exports spiked to 69,400 ounces in April, ahead of possible sanctions, but recent monthly exports have averaged a paltry 6,500 ounces. This is a far cry from the six-figure monthly exports of just a few years ago.
Adding to the palladium (and platinum) crunch, the Chinese government yesterday announced a plan to remove six million old cars and trucks from the road in 2014, 300,000 of which would be taken off the streets of Beijing. Auto exhaust accounts for 31% of Beijing’s literally deadly smog. A further five million older vehicles are slated to be scrapped next year. That’s a LOT of catalytic converters that are going to be needed.
Other big news on the precious metals front is a report that the government of Austria is sending a team of auditors to the Bank of England, to see for themselves if their 150 tons of gold is really there. If it wasn’t, I’d bet that the Bank of England took yesterday’s big drop in gold prices to buy a few tons on the open market.