Gold, silver and the PGMs have all been solid in the past week and are convincingly off their lows. This is surprising given that the market is becoming more convinced of tapering in the US. Perhaps this move is better understood by looking at FX markets, where better news from Europe is perhaps shifting some of the USD bullishness of the last few months.
It is interesting that through this move, PGMs and silver have outperformed gold, which gels with the improvement in the OECD leading indicators. For my money, PGMs continue to look like a good bet, with the platinum balance sheet in particular seeing a larger shift towards deficit than previously thought.
First factor is the sustained increase in platinum ETF holdings thanks to the introduction of a fund in South Africa. This has been driven by a lot of long-only funds, which have always wanted exposure to the metal as they understand the disaster of the mining industry, rather than fast money that will sell out soon.
Second is the sustained level of Chinese interest, with precious metals jewellery sales booming. The proxy for this is turnover of platinum on the Shanghai Gold Exchange, which is effectively a sale from the state run platinum agency.
Final factor is that it appears that European auto production is starting to lift from the depths of despair, with estimates for Q2 production positive for the first time in a long time. This will not only shift real consumption of the metal, but will bolster sentiment as well.
Recent gains in the platinum price also appear to be driven by short covering rather than new longs. This dynamic could still have some way to run, with additional long interest also possible given we are off recent highs.
While the fundamentals for palladium continue to look good, there perhaps been as much of a change to the balance as platinum. For example. ETF flows have been muted, although there is talk of another South African ETF launch this year.
Palladium also doesn't have the benefit of more balanced futures positioning, with speculative investors overwhelmingly long.
This doesn't mean palladium won't go higher. But in the shorter term, it seems that platinum will perhaps make up some ground against palladium.
