SHANGHAI, Mar. 5 (SMM) - The following is an excerpt from monthly market overview for March 2014, written by Edward Meir, Indepent Commodity Consultant with INTL FCStone Inc.
GOLD COMEX NEARBY CONTINUATION
Gold had a very solid run in February, gaining about $90/ounce over the course of the month and handily beating our upside target of $1285. The complex has been buoyed by several variables, chief among them, growing tensions in Turkey, Venezuela, Thailand and most importantly, the explosive developments taking place this week in the Ukraine. Also helping the advance, has been a significant moderation in SPDR outflows, while the sharp slowdown in recent US economic activity on account of winter weather may have also prompted long side money into gold. The thinking here is that the Federal Reserve might initiate a pause in its tapering program if the US economy does not snap back as expected in Q2. In many ways, the second quarter will be a testing period for the precious metal -- if the US economy indeed recovers, it will restore the stronger dollar/ higher interest rate theme that was prevalent late last year and one which weighed heavily on prices. On the other hand, if weather does not explain the recent weakness and the US economy continues to sputter, gold could see another leg higher. Of course, the current Ukrainian crisis is the current wild card and the ultimate endgame is still too murky at this stage. Our take is that gold prices will indeed come under pressure in the second quarter, but that March is likely too early for a pullback, especially given that the recent geopolitical are still too raw. Over the course of March, we see prices trading between $1300-$1390.
SILVER NEARBY CONTINUATION
We certainly got it wrong on silver last month, as the complex had a stellar run instead, breaking above tough resistance at $20.50 level and barreling on to a four-month high of around $22.20. At one point, the complex was up for 12 straight days, a run not seen since the early 1980’s, as a round of fresh buying and short-covering set in. Much of the advance was on account of gold’s move higher, silver’s improving technicals and a resumption of inflows into ETFs. In fact, holdings in silver ETF’s are now showing positive growth on a year-to-date basis, the only precious metal having that distinction (the other being platinum). However, it will be difficult for silver to maintain its gains if gold starts to falter. As noted above, this could possibly happen during April/May, two months of the year that coincidentally have been particularly treacherous for silver bulls in two of the last three years. Over the course of March, we see silver trading between $20.50-$22.50.
PLATINUM NEARBY CONTINUATION
Platinum had good showing over the course of February, hitting a low of $1360 early on, but then regrouping to hit a high of just under $1460. Prices pushed higher on a stronger gold market, while a strike in South Africa (now entering its sixth week) is also providing support. As the strike has dragged on, South Africa's Impala Platinum declared force majeure on supply contracts at its Rustenburg mine last week and smaller mines are likely feeling the pinch as well. Importantly, the talks are continuing, but wages remain a key sticking point. The unions are demanding a doubling in salaries, while producers are offering only a 9% increase. While supply remain in question, the demand picture, especially out of Europe, continues to improve. In this regard, a European industry association said last week that car sales rose 5.5% in January, as car markets in Britain, Spain and Germany all posted increases of 7% or more. Even Italian sales, long a laggard, grew by 3.2% for a second month in a row. We remain reasonably upbeat on platinum going into March, as the complex should gather support from gold’s push higher on geopolitical worries. A settlement in the South African wage talks could force prices to retreat, but any correction should prove short-lived. We see prices trading between $1405-$1520 in March.
PALLADIUM NEARBY CONTINUATION
Palladium very much followed platinum’s trajectory over the course of February, rising by about $50/ounce over the period and only adding to its gains so far this week. The South African mine strike (see above) has also helped. What’s more, investors are not reading too much into the deceleration we are seeing in US car sales, as they are attributing the slowdown to colder weather. Edmunds.com thinks that February US car sales should run at an annual rate of about 15.5 million units, higher than January but only up .8% year-over-year. It is also expecting warmer weather to reinvigorate sales as we head into Q2. Out of China, auto sales hit a new monthly record in January; some 2.16 million cars were sold, a year-on-year increase of 5.99%, while output increased 4.44% to 2.05 million units, this according to the China Association of Automobile Manufacturers. Outside of the autos, the fundamental backdrop for palladium continues to look promising. In this respect, a recent Citicorp estimate has the market in a 1.139 million ounce deficit this year, following a 740,000 pounds shortfall left over from last year. Over the course of March, we see prices trading between $730-$810, marking a 3 ½ year high in the process.
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