South African Strikes Continue; Citigroup Estimates Probability of QE3 at 99%

Gold and silver are trading relatively flat today while platinum and palladium are up following news of further unrest surrounding South African miners and leading platinum producer Lonmin plc. Reports were released today that 10,000 striking platinum miners – many of whom were armed with sticks and machetes – marched on several Lonmin mine shafts threatening violence against strike breakers who are continuing to work. The recent strikes have inspired laborers in South African gold mines to rebel against their own employers. The result has been a stoppage of production at two Gold Fields (the world’s fourth largest gold producer) mines in the last several days. “We haven’t been given any demands but the pattern is the same as KDC East. It is intimidation. The strikers went around from hostel to hostel yesterday to prevent the others going to work,” Gold Fields spokesman Sven Lunsche said.

Despite the conflict, the Gold price has yet to be seriously impacted by concern over a significant stoppage in production. The main focus for investors is the looming concern over the Federal Reserve’s announcement of a third round of bond-buying known as quantitative easing (QE3). An analysis of current market factors and recent news surrounding the state of the U.S. economy have prompted Citigroup Inc. to estimate the chances of QE3 at 99% as many experts await more definitive language from the Fed regarding the steps it will take to aid the struggling economy. “Nervousness and continued agony over in Europe, the fiscal cliff, election uncertainty means there are a lot of headwinds,” said Mark MacQueen, partner and money manager at Austin, Texas-based Sage Advisory Services Ltd., which oversees $10 billion. “Everything is lining up to be more difficult. The Fed will give us language that reassures the market they intend on doing more.”

At 1PM EDT the APMEX precious metals prices were:

  • Gold price – $1,731.10 – down $8.40
  • Silver price – $33.57 – down 12 cents
  • Platinum price – $1,605.00 – up $7.70
  • Palladium price – $672.20 – up $17.40
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End of week report: Gold’s Move Tied To Central Bank Action?

 

Gold’s Move Tied To Central Bank Action?:

Quantitative easing (QE) from either the European Central Bank (ECB) or the Fed seems to be the key factor in a rally for the price of Gold. Should either central bank announce a round of QE, prices are likely to increase due to the results of such action all being supportive of the Gold price. Investors shouldn’t be surprised to see action from Europe before the U.S., however. London’s Marex Spectron said in a note, “The eurozone appears to continue to struggle, while the U.S. keeps surprising the market with positive figures. This only enhances the chance the ECB is more likely to act before the Fed.”  The upward push on Gold is being kept in check somewhat by the mixed United States economic data that suggests the U.S. Federal Reserve will continue its “wait and see” attitude. The Jackson Hole meeting at the end of this month could bring into focus what central banks are planning to do. “After Jackson Hole, the markets will hopefully have a better idea,” said Afshin Nabavi, head of trading at MKS Finance. “Until then, we should continue trading within this range.” A lack of liquidity over the quiet summer months was preventing Gold from moving higher, he said.

Weakening Rupee Hurts Demand:

Physical demand for Gold is taking a hit in India now. That country has been the world’s largest consumer of Gold, in large part due to its high demand for use in jewelry. The two factors that are playing into the softening demand are an increase in import duties and a weak Indian rupee, which drives the local price of Gold higher. Combined with a stronger dollar and weaker euro, the rest of the world is seeing the Gold price hover around $1,600 per ounce. With currency trade on one end and the desire for a safe haven investment on the other, Gold seems to be tugged by both sides at the moment, waiting for a potential announcement on QE from either the United States Federal Reserve or the European Central Bank. India’s festival season has begun and will peak in November. This is a time for weddings and giving Gold gifts.

Mine Violence Sparks Platinum Prices:

Platinum prices have spiked Thursday as a bloody conflict between South African police and striking miners at Lonmin’s Marikana Platinum mine resulted in many injuries and an unconfirmed number of fatalities. The police moved to disperse the estimated 3,000 miners by force after talks broke down with the Association of Mineworkers and Construction Union. Today’s violence caps off a week of fighting that has already seen ten deaths, two of which were police. Lonmin said it had lost the equivalent of 15,000 ounces of Platinum from the six-day disruption, and was unlikely to meet its full-year production target of 750,000 ounces.  Friday saw the confrontation between police and South African miners at Lonmin PLC has escalating, causing Platinum to rise drastically for the second straight day. South Africa produces 75 percent of the world’s Platinum, and concern over its output could spur further gains.

 

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Mixed bag of economic data keeping Gold in tight race

 

The gold price has remained steady at midday following the euro as gold continues to track currency markets. Ross Norman, chief executive officer of Sharps Pixley, commented on recent news of slowing gold demand by stating, “You’d think gold would subside, but it has performed well, responding to small optimism on euro gains and dollar weakness.” This positive sentiment comes amidst growing concern over short and long term inflation expectations. “We’ve had this mixed bag from the economic data,” said Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research in Cincinnati, Ohio. “We are all just kind of wondering ‘Is this recovery real?”

The unremarkable movement in the gold price over the last few days has not been overshadowed by the sudden spike in platinum prices. News that the confrontation between police and South African miners at Lonmin PLC has escalated since yesterday is causing platinum to rise drastically for the second straight day. South Africa produces 75% of the world’s platinum and concern over its output could spur on further gains.

At 1 p.m. (EDT), the APMEX Precious Metals spot prices were:

  • Gold, $1,616.00, Down $1.80.
  • Silver, $28.15, Down $0.17.
  • Platinum, $1,474.40, Up $38.20.
  • Palladium, $607.50, Up $22.60.

 

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