David Hargreaves on Precious Metals, week 23 2014

Gold flirted with $1250/oz all week and its cohorts reacted accordingly. The wolf pack that is mining analysts, some with the blessing of their major banking bosses, is looking for $1100 in short order. In company, it expects silver and platinum to follow suit. In particular it warns that platinum might suffer a sharp correction. Reason? South Africa’s new mines minister says a settlement of the 5-month old miners’ strike is close. Now the man with the unpronounceable name, Ngoako Ramatlhodi but let’s call him NR, has no background whatsoever in mining but was a leading light in the prison service. Has he counselled the participants on the alternative? We suspect Pres. Z. has told him to bulldoze a deal through as this debacle is greatly damaging the country’s reputation.

The London Fixings, for Au, Ag and Pt are an institution. Now they are under fire. Partly, it came via attempts at manipulation but the mechanisms were viewed as anachronistic, particularly for gold. How could representatives of five companies meet twice daily in a little room, thousands of miles away from the nearest mine and determine how the price of $150 billion of physical metal and ten times that in derivatives, be fixed. But it started with silver, whose annual newly mined metal value is dwarfed at $15 billion. Leading light Deutsche Bank resigned from both panels in May and it is agreed that silver fixing, in its present form, will end in August. There has been no rush of buyers for the bank’s position (it is getting out of commodities) and the London Bullion Market Association (LBMA) is frantically searching for a new benchmarking system. They speak of “a robust, transaction-based electronic system” to set the daily spot price.

Hats into the ring could include the LME, Reuters and the Chicago Merchantile Exchange (CME). Possibly ETF Securities too.

WIM says: Let us not forget the Hunt Brothers silver market heist of 1979-80, when a sophisticated market manipulation pushed the price from below $4 to $48 per ounce before a crash. Silver is industrial with a major recycling component. Gold is not. The precious metals have supply and demand problems of unusual severity right now and could do without their pricing mechanism being overturned. It could turn their sectors of the stock market into a high wire act.

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About David Hargreaves

David Hargreaves

David Hargreaves is a mining engineer with over forty years of senior experience in the industry. After qualifying in coal mining he worked in the iron ore mines of Quebec and Northwest Ontario before diversifying into other bulk minerals including bauxite. He was Head of Research for stockbrokers James Capel in London from 1974 to 1977 and voted Mining Analyst of the year on three successive occasions.

Since forming his own metals broking and research company in 1977, he has successfully promoted and been a director of several public companies. He currently writes “The Week in Mining”, an incisive review of world mining events, for stockbrokers WH Ireland. David’s research pays particular attention to steel via the iron ore and coal supply industries. He is a Chartered Mining Engineer, Fellow of the Geological Society and the Institute of Mining, Minerals and Materials, and a Member of the Royal Institution. His textbook, “The World Index of Resources and Population” accurately predicted the exponential rise in demand for steel industry products.