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Mine to Market Commentary

Gold and silver performed well during June and into the first half of July. A confluence of factors created an updraft in gold as fears of an escalation of conflict in the Ukraine and the sabre-rattling of the US and Britain against the Russian rhetoric, captured the attention of traders. Gold had a strong and rather unexpected rally of USD40 in one night to finish the New York trading session at USD1327.00/oz at the end of June. Weak short positions were stopped out and a smattering of new long positions was taken on the back of a weaker USD. This coincided with the Northern Hemisphere heading into the “holiday season” environment. From there gold tried to break above the USD1330 level several times before finally succeeding in the second week of July with rumours of payment difficulties for one of the Portuguese banks and the related implications that this may hold for the European banks as a whole. The USD1345.00 level proved too hard to crack and once gold broke back through the USD1330 level it fell within a couple of sessions through the USD1300 level before it found some support. Some relatively dovish comments from Janet Yellen on the fragile nature of the US recovery were overlooked for the wider implication that the potential for interest rate hikes had been somehow brought forward from what earlier expectations had been. Even the tragedy of MH17 and the ground offensive from Israel in Gaza only provided a one-day rally.  It appears that short-term speculative long positions have become exactly that; very short-term. This sort of price action in the period of the “summer doldrums” is not unexpected in an environment where skittish market activity and news items can have a much larger effect on prices (on smaller trading volumes) than would typically be the case.

Silver ran its own race at the start of June until gold finally caught up and it appeared early on as if a concerted bid to move silver off its lowest levels since the end of June 2013 was underway. Silver was already up 5% for the month by the time the big gold rally hit in the third week of June. It then rallied another 5% on the day that gold went for a 3% run.  It peaked at USD21.45 on July 14th almost a full USD3 above its starting price at the beginning of June. It ran into selling as the gold was sold down heavily but in relative terms it held its ground, sitting firmly at a ratio of 62.5:1 against the gold price, a marked improvement from the 67.5:1 ratio seen a month prior. It appears silver has lured back some of the speculative interest that help pump it up to the USD47.00 level in early 2013 and this is reflected in the CFTC numbers for Nymex showing the highest outstanding long speculative futures position ever at 53,951 contracts on 11th July representing a long position of almost 270 million ounces.

Platinum and Palladium were also well bid through to the middle of July with an ongoing strike at Anglo American in South Africa continuing to buoy the Platinum price but speculative long positions on Nymex also reaching an all- time high of 45,809 contracts representing a position of almost 2.2 millon ounces. This is on top of the ETF holdings which are long a further 2.8 million ounces. All of this seems like a very large one-way bet for a market that only produces globally around 7 million ounces per year. Platinum had eased back with silver from its high of around USD1520 to sit at the high USD1480’s by the third week of July but Palladium stoically held in at near-highs around USD880 even in the face of lower car sales data from China and the implied reduction in demand for catalytic converters (and hence the requirement for PGMs) that these numbers foreshadow.


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