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Market Nuggets: Barclays: Higher South African Labor Costs Loom For Gold Producers

Friday July 19, 2013 11:35 AM

Potentially higher South African labor costs loom for gold, says Barclays Capital. Given low gold prices, there is little headroom for these costs to rise if production is to remain profitable, the bank says. Yet, the industry has received demands for rises in wages ranging from 14% to 150%, the bank relates. “All of these exceed the 10-year average increase and overall average inflation rate,” Barclays says. “Excluding sustaining capex, which we estimate at around $200/oz, our latest cost curve tells us that the average South African cash cost was $1,233/oz in Q1….Using this cash cost estimate, the assumption that 50% of cash costs are labor, the Q2 ZAR/USD (rand/dollar) average of 9.5 and applying the average wage demand in 2013, another round of wage increases could imply cash costs of up to $1,246/oz, not far from current price levels even before accounting for sustaining capex.”  Barclays later adds that if labor costs rise anywhere near union demands and the rand/dollar exchange rate is near the second quarter, as much as much as 17% of South African production would be underwater if gold prices average around its third-quarter forecast of $1,200/oz even before accounting for sustaining capital expenditures.

By Allen Sykora of Kitco News; asykora@kitco.com


Market Nuggets: BBH: Detroit Bankruptcy Won’t Impact U.S. Dollar

Friday July 19, 2013 11:09 AM

Although Detroit is so far the biggest American city to declare bankruptcy, it won’t have any significant impact the U.S.’s credit rating or on the greenback, says Marc Chandler, global head of currency strategy at Brown Brothers Harriman. Strong vehicle sales from General Motors, Ford and Chrysler, is pretty much the only news out of Detroit that foreign investors will care about because it has a direct impact on the health of the economy, he adds. “The bankruptcy will buy the city some time away from creditors so they can restructure their debt. It’s politically embarrassing but it doesn’t have any bearing on the U.S. dollar. It’s not like Europe, Detroit won’t be forced to leave the union because they declared bankruptcy,” he says.

By Neils Christensen of Kitco News; nchristensen@kitco.com


Market Nuggets: BOA/Merrill Lynch: Chinese Restocking May Help Copper, Iron Ore in 2H

Friday July 19, 2013 8:50 AM

Re-stocking could support copper and iron ore during the remainder of 2013, says Bank of America/Merrill Lynch. "Heavily influenced by muted global economic growth in recent quarters, stocking cycles in China have had a sustained impact on raw material price movements in recent months," the bank says. "After a period of destocking, Chinese copper and iron ore inventories are low at the moment and the scope for some restocking may support prices of these two raw materials in 2H13. In fact, iron ore has already rallied in recent days. Yet, beyond that, we see only limited scope for a sustained rally in these two commodities partially because of supply increases." The bank forecasts copper at $7,350 a metric ton in the third quarter but $7,250 in the first quarter of 2014. Other third-quarter forecasts for base metals include aluminum, $1,900; lead, $2,100; nickel, $14,750; and zinc, $1,900. Precious forecasts for the third-quarter include gold, $1,400 an ounce; silver, $20; platinum, $1,600; and palladium, $750.

By Allen Sykora of Kitco News; asykora@kitco.com


Market Nuggets: BOA/Merrill Lynch: Pickup In Developed Economies Could Help Platinum, Lead, Zinc

Friday July 19, 2013 8:48 AM

A pickup in economic growth in developed nations, while economies slow in emerging markets, could help commodities such as platinum, lead and zinc next year, says Bank of America/Merrill Lynch. China's economy has slowed, with headwinds faced by other emerging-market economies. "Challenges to EMs will unlikely abate, in our view, in part because the gradual removal of extraordinary monetary policy by the Fed will reduce the availability of cheap capital; corporate bond issuance in EM is set to be falling partially because of that," the bank says. "Yet, this macro economic backdrop comes with a silver lining. We believe economic activity in advanced nations should pick up and DMs are set to increase their contribution to global growth….This is one reason why we believe the prices of more supply-constrained commodities such as platinum, lead or zinc could rise in 2014."

By Allen Sykora of Kitco News; asykora@kitco.com


Market Nuggets: TDS Sees Higher Gold Over Summer But Pressure When Fed Lets Yields Rise

Friday July 19, 2013 8:00 AM

TD Securities looks for gold to hold up during the summer but cautions that weakness could resume later in the year, assuming the Federal Reserve starts withdrawing quantitative easing. Analysts say "the introduction of policy ambiguity" by Federal Reserve Chairman Ben Bernanke in recent weeks "has partially, albeit temporarily, reversed the rise in bond yields and should also keep the greenback from making new highs. This has already boosted gold prices and may bring us higher throughout the summer, as economic data is unlikely to be stellar and the Fed will remain coy. As such, investors are unlikely to dump their gold as enthusiastically as they have over the last few months, with possible growth in long interest. Slower equity market momentum should also help to moderate the exit from gold. We could also see robust short-covering if we reach levels near the upper bound of the current trading range ($1,200-1,325)." However, TDS says, this may be "temporary" as "the Fed will allow rates to move higher later in the year and lift the opportunity cost of holding the yellow metal. Conversely, there could be some producer hedging which could prevent the deferred part of the gold curve from moving too high, as central banks are unlikely to provide liquidity."

By Allen Sykora of Kitco News; asykora@kitco.com


Market Nuggets: BNP Paribas: Case for U.S. Dollar Strength Remains

Friday July 19, 2013 7:58 AM

With the 10-year U.S. Treasury yield settling back into its recent range close to 2.5% and European and Asian equity markets pulling back Friday from their recent rallies, the U.S. dollar is "directionless" after Federal Reserve Chairman Ben Bernanke's semi-annual policy testimony due to a lack of U.S. economic data until next week, says BNP Paribas. Still, the bank says that "it continues to make sense to trade the USD from the long side. While data has been mixed so far in July, we think the fiscal headwinds restraining growth will likely ease in Q3 and Q4, supporting tapering expectations and allowing scope for data to act as a more consistent source of support for the USD. Notably, the two July time-stamped data releases we have received this week (Philadelphia Fed on Thursday and Empire Fed on Monday) both surprised to the upside. With less scope for new hawkish information from the Fed in the near term, we continue to emphasize the importance of funding USD longs with currencies backed by central banks in easing mode."

By Allen Sykora of Kitco News; asykora@kitco.com


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