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Precious Metals Report
(25 February 2012)

 

Last week brought the important Greek bail-out talks to an end, and several markets have reacted positively, since the announcement of these agreements. There is still a need for more details to be published, but the main framework and assurances are now in place, and this can help Greece to disappear from the headlines for a while. This would also give the politicians and the population of Greece time to achieve some level of "normalcy," as they seek to implement these policies that still seem highly unpopular.

I think it is important to recognize however, that this might only be a temporary calm, as the German Finance Minister, Wolfgang Schaeuble, has already hinted in an interview with German Television, that a third Greek bail-out package might be needed.

Against this scenario, all four precious metals had a very good week, and all of them have broken out of their respective trading ranges.

Gold: US$1772.00 – up US$48.50 since last week. Last week started very much with an Asian reaction to the lowering of the minimum reserve requirements for banks in China. This moved Gold up into the mid US$1730’s while the announcement of an agreement concerning the bail-out for Greece came early Tuesday morning.

These announcements helped to shift Gold into the mid US$1740’s. The main move, however, came on Wednesday night when Gold finally broke through the resistance level at US$1764, and settled around the US$1772 level. Gold managed to trade up to the low US$1780’s before profit taking was visible on Friday evening.

The nearly one month-long consolidation phase, whereby Gold traded between US$1705 and US$1764, now looks constructive on the charts.

Nevertheless, we do have some concerns that the rise in Gold prices has been mainly driven by new speculative long positions on Comex. Physical demand is very slow, and at Emirates NBD, we have witnessed a lot of redemptions from our customer base for our Gold Certificates. The prices in AED had risen to nearly AED 210 per gram, and our customers seem to have used this, in order to take some profits from their investment.

Option volatilities midrates: Gold atm (at the money)
1 month 16.75% up 0.50%
3 month 18.50% unchanged
6 month 20.25% down 0.25%
1 year 22.00% down 0.50%

EFP Spot Gold to April Comex: US$1.30
ETF: Holdings are at 2475 tons overall, an increase of 35 tons
Support: 1765 and 1705 Resistance: 1804 and 1830

Silver: US$35.35 – up US$2.08 or 6.2 per cent since last week. Silver has been the main benefactor of last week’s price movements. A clear break and close over the major resistance level at US$35.70 could clear the way towards a potential run-up into the US$40 area; but caution, especially in the case of "Volatility King" silver, is in order. A failure to overcome this next major resistance could see silver, on a pure technical level, easily retrace towards the US$33.89 level. Overall, the on-going decrease in implied volatilities, signals that the trading in silver has been a mixture of short-covering and new fresh longs.

Option volatilities midrates: Silver atm (at the money)
1 month 30.00% down 1.50%
3 month 33.25% down 1.25%
6 month 36.00% down 0.50%
1 year 37.25% down 0.75%

EFP Spot Silver to March Comex: US $ minus 2 cent
ETF: Holdings are at 15,085 tons, an increase of 25 tons
Support: 34.56 and 33.89 Resistance: 35.70 and 36.05

Platinum: US$1707 – up US$80 since last week. The "sketchy" situation at Impala Platinum has helped Platinum to this impressive five per cent gain in the last week. The discount to Gold has been eroded further to just US$65, and it seems that a number of reasons for this strong move are already priced in, at these current levels. The major resistance level at US$1740 represents quite a strong technical level, and there might be doubts in the investment community about challenging this resistance as of now.

There are views in the market that Eskom (South African Electricity company) might announce further electricity cuts, which would lead to more production losses in Platinum, which in turn, might be bullish for the metal. Another discussion point is that the on-going strike at Impala will lead to a complete wipe-out of the expected Platinum surplus for 2012, with all the positive aspects for the price development becoming clearer later in the year.

These are a lot of assumptions and speculations which, in our view, do not represent facts and reality. We urge caution until much more needed investment participation is visible. That would solidify the rally, and would make it a far more broad-based performance.

Option volatilities midrates: Platinum atm (at the money)
1 month 19.50% down 0.50%
3 month 22.00% down 1.00%
6 month 24.00% down 1.00%
1 year 25.50 % down 1.00%

EFP Spot Platinum loco Zurich to April NYMEX: US$2.40
ETF: Holdings are unchanged at 47 tons.
Support: 1690 and 1678 Resistance: 1740 and 1767

Palladium: US$708 – up US$26 since last week. Palladium has followed nicely, the impetus given the precious metals complex by Gold and Platinum during last week. Palladium prices have consolidated very well indeed, but a major challenge of the US$730 level seems at this stage, one step too far.

We do not see any significant development at the moment, which could indicate a break of the resistance levels, unless the move comes on the back of further gains from Gold and/or Platinum.

Option volatilities midrates: Palladium atm (at the money)
1 month 26.50% down 0.50%
3 month 31.00% down 1.00%
6 month 33.00% down 1.00%
1 year 35.00% down 0.50%

EFP Spot Palladium loco Zurich to March NYMEX: US$0.10
ETF: Holdings have increased by 0.5 tons to 59 tons
Support: 692 and 651 Resistance: 730 and 755

Emirates NBD is proud to announce that it will be serving as the Title Sponsor of the upcoming Dubai Precious Metals Conference, together with Standard Bank. An initiative from the DMCC, and organised by Foretell Business Solutions, the Dubai Precious Metals Conference will take place from April 29 – 30, 2012. All the information about this important conference can be found on http://www.dpmc.ae/index.html

 


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