Platinum Bargain Hunting Expected After Pullback As Strike Continues

March 28, 2014

New Yorki (Mar 28)  Any further weakness in platinum prices may well be viewed as a buying opportunity, especially with much of the world’s mine output still sidelined by a strike in South Africa, analyst said.

Some go so far as to call current platinum prices “cheap,” especially with production at Anglo American Platinum, Impala Platinum and Lonmin all sidelined by a walkout by the Association of  Mineworkers and Construction Union.

July platinum on the New York Mercantile Exchange put in several daily highs around the $1,490-an-ounce area earlier in March, trading up to $1,488.60 as recently as March 14. Since then the metal dipped back below $1,400 both Thursday and Friday. As of 10:49 a.m. EDT Friday, July platinum was $6.30 higher at $1,404.70.

Analysts blamed the pullback on selling in sympathy with the decline in gold, ideas that the differences between strikers and producing companies has narrowed some, as well as general profit-taking in a market that had seen a big run-up on speculative interest.

Gold has fallen back by a little more than $100 from its mid-month high, dragging platinum down with it although not necessarily dollar-for-dollar, said Robin Bhar, metals analyst with Societe Generale. “All of the precious metals are interlinked, with gold arguably the complex leader,” he added.

Some of the weakness was blamed on some modest signs of progress toward a settlement of the South African strike. For instance, HSBC pointed out that the AMCU said it was now willing to accept a doubling of the entry-level wage to 12,500 rand per month over four years rather than its previous demand of three years.

Additionally, when platinum was unable to generate upside follow-through earlier in the month, selling in the form of profit-taking set in, said Afshin Nabavi, head of trading with MKS (Switzerland) SA.

One North American trader said the large net length of speculators (number of bullish futures positions minus the bearish ones) meant the market was ripe for profit-taking whenever the bulls opted to exit. As of March 18, data from the Commodity Futures Commission showed the large non-commercials – often referred to as the funds – were net long by 46,377 lots for Nymex futures and options combined, the most in more than a year.

Bargain Hunting Expected If Strike Continues

The outlook from here is a tough call due to the uncertainty about how long the South African strike might last, some observers said. The country is crucial to the platinum market, providing roughly three-quarters of the world’s mine supply.

For instance, a trader said, some of the recent headlines have been mixed. While there are some thoughts striking workers could be running out of money, the AMCU said this week that it was prepared to keep striking for another six months, if necessary. Further, a mining executive reportedly was quoted as saying a settlement might be near but also warned that much output would be unprofitable, which presumably would mean job losses.

Platinum may well sell off sharply if a settlement were announced, Bhar said. Also, on further weakness below $1,400, there is potential to uncover sell stops. These are pre-placed orders activated when certain chart points are hit.

But if the South African strike continues, buying may well re-emerge, analysts said.

A price below $1,400, from a consumer perspective, is “almost dirt cheap, if I can use that word,” Bhar said. “So I would expect a lot of bargain hunting to come through from consumers and investors thinking, ‘well, it can’t go much lower with the strike, some of the supply tightness and the market in a deficit.’”

Source:  Kitco

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