By Jeffrey Halley
PALLADIUM OUTSHINES PRECIOUS METALS.
Precious metals were the centre of attention today with Gold +1% and Silver + 2% to regain $20.00. However, it was the platinum group metals (PGM’s) that really shone in Asia trading. Platinum is finishing +2 % on the day with Palladium; it’s often forgotten little brother, the real star, up 7.5% at one stage before settling at + 5% on the day.
There seems to be a range of factors at play here rather than one single event. All coinciding with a period of USD weakness led by stop-loss selling in USD/JPY this morning.
Geopolitics has certainly played its part, and the buying across the board in Asia certainly had a whiff of safe haven buying to it. Asia came in this morning to two pieces of important regional news regarding the South China Sea and specifically the disputed area of the Spratley Islands.
1. China has very rapidly and recently constructed hardened aircraft shelters on the Subi Reef, one of their man-made islands. For those who don’t know, hardened aircraft shelters are built to provide protection for military jets from attacks when on the ground. Is this a precursor to the deployment of combat aircraft? Certainly, the street is worried it may be so. Link to story: China source Reuters
2. Even more worryingly, the Vietnamese appear to have reinforced their own installations on the disputed Spratley Islands. Deploying mobile rocket launchers capable of hitting the aforementioned Chinese installations. Link to story: Vietnam source Reuters
For those interested, the Spratley’s sit in the South China Sea and no less than six countries claim all or part of them. Unsurprisingly the region is also supposed to be sitting on rich deposits of oil and gas. More information here: Spratley Islands Disputes source Wikipedia
Against a weaker USD backdrop generally, it is perhaps no surprise that Asia was keen on buying Gold and Silver this morning. The South China Sea is a very tense place on everybody’s doorstep these days.
Broke the New York highs at 1342 early in the session and raced to 1355 before settling at 1352. 1360 the breakdown from last week remains the next major resistance area. Support becomes the breakout today at 1342 followed by 1338. The greater USD sentiment and geopolitics being the main drivers.
A similar but more constructive picture. Again broke the New York highs around 19.85 with a rapid rise the 20.17 area. Unlike gold, it has consolidated and pushed onto new hourly highs and is now trading 20.2850 on the day. Congestion in the 20.40/60 region provides resistance before the recent highs from 4th July at 21.15.
Hourly support lies at 20.15 and then the 19.85 breakouts
Silver is playing a bit of catch-up on an ETF basis as well recently with inflows to Gold ETF’s far outweighing Silver of late.
Platinum Group Metals (PGM’s)
A few other factors at play here in addition to the above. One of them is certainly liquidity in the Asian session. On a good day it isn’t the greatest, and when everyone runs for the door at once, it disappears. This can exaggerate moves in Asia.
It is a Public Holiday in Japan tomorrow. (Mountain Day) Thus Japanese accounts may have had more interest than normal in precious metals.
PLATINUM AND PALLADIUM
PGM’s are predominantly industrial metals. Used mostly in catalytic converters in motor vehicles. In Platinum's case 50 % with the other half used for jewelry. Palladium is almost entirely used for the former. Production globally is concentrated between South Africa and the Russian Federation. Some 70/80% in fact! Thus news in either can cause aggressive moves.
This may be the case in South Africa today. Electricity utility ESKOM suffering a 24-hour wildcat (and illegal strike) by about 1/3 of its workforce over wage increases. Information here: ESKOM source SABC and here: ESKOM 2 source Reuters
ESKOM is responsible for 95% of South Africa’s electricity production. Traders may well have been worried about further possible production losses at mines. This is against a backdrop of long-term industrial action at most of the large miners. Plus the decidedly creaky nature of the South African electricity grid at the best of times.
The strength of the South African Rand (ZAR) has played its part. It’s strengthening to 13.35 in recent weeks could negatively impact earnings in local currency terms. Last night's ZAR rally in New York may have been the final straw for a few underhedged PGM buyers out there.
Broke the New York highs at 1157 and raced to the 1180 area before touching 1183 and consolidating at 1180 again. A close above the 1176 1st August daily high is significant from a technical perspective. Next resistance is at 1186 with support at 1140 area.
There is a possible inverse head and shoulders formation on the weekly chart. I will elaborate more tomorrow.
The star of the day. At one stage up over 8% and still up 6 % on the day. One suspects that the break of $700/oz triggered some stop loss action into an illiquid market as well. The highs at 747 are first resistance with intra-day support at 716. The weekly close will be very interesting on this one.
Overall a good day for precious metals and in particular the PGM’s with many factors at work.