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Market Nuggets: Societe Generale: Storm Clouds Are Looming For Base Metals

Friday August 30, 2013 1:51 PM

Base metals rallied in August but risk aversion – due to the Middle East crisis and rising oil prices – are emerging as the main sources of financial stress capable of capping rallies in the metals, says Societe Generale. “Our fear is that escalating tensions in the Middle East will feed oil price gains, potentially raising concerns about economic growth and, in turn, metals demand,” the bank says. Societe Generale looks for Brent oil prices to spike to $120 to $125 a barrel if the U.S. and its allies start military action against the Syrian regime over allegations of chemical weapons use. Meanwhile, potential tapering of quantitative easing at the September meeting of the U.S. Federal Open Market Committee remains a “menace” for base metals, says Societe Generale. “Finally, our China economist cautions that this growth uptick may not last given the ongoing deleveraging of the shadow banking system and potential headwind from the external situation as a result of potential QE tapering by the Fed,” Societe Generale says.

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

 

Market Nuggets: Comex Gold Moves Little On Comments By John Kerry

Friday August 30, 2013 1:51 PM

Comex gold did not move much late in the pit session on comments from U.S. Secretary of State John Kerry. He says the U.S. intelligence has “high confidence” that the Syrian regime used chemical weapons in areas of Damascus controlled by the opposition, seemingly making a case for limited military action against the government for a “crime against humanity.” Comex December gold was at $1,398.70 an ounce moments before Kerry began speaking, ticked marginally above $1,400, but by around 1:40 p.m. EDT was back below this again at $1,396.50, a loss of $16.40 for the day. The metal was weaker all day on market doubts about an imminent strike on Syria after the U.K. Parliament voted against participation, analysts say.

 

Market Nuggets: Barclays: Marginal Gold Cash Costs Rise 5% Quarter-On-Quarter

Friday August 30, 2013 12:32 PM

Marginal gold cash costs rose 5% quarter-on-quarter to $1,124 an ounce in the second quarter and could increase further if there is labor unrest in South Africa, says Barclays. "We continue to believe several risks could increase cash costs in 2013, especially in South Africa, including higher labor and power costs, which make up 15% and 49% of cash costs, respectively," the bank says. "While South African power cost increases are already known (about 10% this year), labor cost increases have yet to be agreed between the South African Chamber of Mines (on behalf of South African gold producers) and the relevant unions." A "final" offer from the industry has been rejected by unions and a strike is set to begin next week, the bank says. "Any large increases in marginal cash costs are likely to stem from such supply disruptions," Barclays adds.

 

Market Nuggets: Barclays: Base Metals Could Fall Further; LME Copper Stocks Turn Higher

Friday August 30, 2013 12:30 PM

Barclays looks for recent weakness in base metals to continue, especially if this week's rise in London Metal Exchange warehouse stocks of copper continues. The market previously bounced on short covering but now is falling again. "We expect this trend to be sustained based on a combination of now-neutral positioning and an expectation for broad softening in fundamental conditions in Q4, driven by stronger supply growth and a moderation in Chinese growth," the bank says. "We see potential for copper to hover above $7,000/t in the short term before reaching new lows into the year end; and we view aluminum and copper as the most attractive shorts at current prices." The bank points out that LME inventories of copper declined since mid-June and at one point were down by just over 100,000 metric tons. During the past week, however, there have been indications of a reversal of this trend, with an overall 13,000-ton build. "With the Chinese import arbitrage window closed for most of August and Shanghai copper premiums having fallen close to $40/t from their peak, cathode shipments originally destined for China could be increasingly diverted to LME warehouses such as Johor," the bank says.

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

 

Market Nuggets: TD Securities: Gold Pares Loss; 200-Day Average Below $1,500/Oz

Friday August 30, 2013 11:41 AM

Gold has pared its earlier losses after the metal initially weakened after the U.K. Parliament rejected a motion to take part in a military strike against Syria, casting doubt on whether such an action by Western nations is imminent. "Gold has not seen follow-through selling and some shorts have covered ahead of the long weekend," says Steve Scacalossi, director of global precious metals with TD Securities. As of 11:31 a.m. EDT, spot gold was down $6.15 to $1,401.80 an ounce but up from an earlier low of $1,392.25. "Interesting to note - the 200-day moving average is finally below $1,500 - and as I have mentioned previously will begin its rapid decay over the next six weeks," Scacalossi adds. The 200-day average for spot metal was at $1,499.10, leaving the current price roughly $100 below this key long-term average. By contrast, back on June 28 when gold hit its low for the year, the metal was nearly $360 below the 200-day average.

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

 

Market Nuggets: Indian Bank Plan May Curb Gold Prices –HSBC

Friday August 30, 2013 8:43 AM

India's government is mulling a plan to allow commercial banks to recycle gold in an attempt to curb imports, HSBC says, citing a story by Reuters. "The Reserve Bank of India is looking to pilot a project to allow some banks to buy back gold from individuals at a higher price than pawn shops and jewelers to monetize the country's idle bullion, Reuters reported. According to The Times of India, an Indian daily newspaper, jewelry associations in Hyderabad said that the single-day surge of gold prices on Aug. 27 led to an increase in old gold being turned over to merchants for recycling. An increase in gold recycling may curb future price rallies, we believe," HSBC says.

By Debbie Carlson of Kitco News dcarlson@kitco.com

 

Market Nuggets: Market Nuggets: Platinum Could Target $1,700 – TDS

Friday August 30, 2013 8:41 AM

Improving macroeconomic conditions in Europe and the potential for more production interruptions in South Africa could push platinum to new highs above $1,557 an ounce in the near-term, $1,640 medium-term and eventually $1,700, says TD Securities. "However, given that the supply side and the demand side are about to work together to tighten up supply/demand fundamental over the next 12 months, we are willing to say it will be different this time around," they say. Between possible supply cuts and a pickup in European demand, platinum's supply deficit could rise to 620,000 ounces in 2013 and hold near 500,000 ounces in 2014, they add. "At the current price of about $1,520/oz, a large majority of South African producers, who account for about 70% of global primary output, can't cover their all-in costs. As such, they will have little incentive to grow production to close the supply/demand gap and will bargain very hard with labor. Consequently any correction that may well materialize in the near term should be viewed as a buying opportunity for the long term. All this spells the need for higher prices," they say.

By Debbie Carlson of Kitco News dcarlson@kitco.com

 

Market Nuggets: Commerzbank: Nickel Falls More Than LME Index This Year On Higher Supplies

Friday August 30, 2013 8:34 AM

Nickel has been harder hit than other base metals in 2013 due to increased supply, says Commerzbank. Nickel has shed 20% of its value since the beginning of the year, while the broad-based London Metal Exchange base metal index has fallen by lesser 13% "One major reason for the sharp price fall, besides the generally weak demand, was a simultaneous increase in supply," Commerzbank says. "In the first half of the year alone, the high production surpluses that this brought about totaled more than 74,000 (metric) tons, which is well above the already pessimistic estimates from the spring. LME nickel stocks have thus soared by 150% since November 2011 and at over 212,000 tons are currently at their highest ever level. At their present level, they would satisfy around 12.1% of global demand. This is a great deal given that much importance was attached in the past to delivering such metals 'just in time.' By way of comparison, the much-discussed gigantic LME aluminium stocks of over 5.4 million tons would currently account for 11.8% of annual demand, while copper stocks would cover less than 3% of annual demand."

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

 

Market Nuggets: Commerzbank: South African Gold-Mining Strike 'Inevitable'

Friday August 30, 2013 8:32 AM

A strike in the South African mining sector appears "inevitable," Commerzbank says. The bank cites news that the South African Chamber of Mines, which is negotiating on behalf of the mining companies, emphasized Thursday that its offer of a 6.5% pay increase was final. "Now that the unions have rejected this deal yet again, mining producers have reserved the right to lock workers out, which could result in around 142,000 workers going on strike," Commerzbank says. The bank cites Chamber of Mines data showing that a strike would cost the mining companies the equivalent of $34 million per day and would lead to extensive production outages in South Africa, the world's fifth-largest gold producer.

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

 

Market Nuggets: UBS: Gold Bought As A Safe Haven But For How Long?

Friday August 30, 2013 8:30 AM

UBS says gold has been acting as a safe haven but it remains to been seen how long this will occur. “Further escalation in tensions could take prices higher,” the bank says of the crisis involving Syria. Otherwise, UBS says its “base case” has been that gold is likely to struggle against Federal Reserve tapering of quantitative easing, an improving U.S. economy, rising yields and stronger U.S. dollar. “But for now, gold downside is likely to be limited given the potential for escalation in the crisis in Syria and prolonged tensions,” the bank says. The mid-September meeting of the Federal Open Market Committee remains a key risk event, the bank says. “Although Comex gross shorts remain elevated historically, the consistent decline in short positions over the last six weeks implies that there is now relatively more room for fresh gold selling in the event that expectations for a slowing in Fed asset purchases are confirmed next month,” UBS says. “This is an important factor that is likely to make investors think twice before aggressively playing gold from the long side on the back of geopolitical concerns.” However, UBS later adds, “A potential game-changer would be if the situation in the Middle East intensifies significantly and lingers for a much longer period than expected, such that the uncertainty, combined with subsequently higher energy prices, starts to cast serious doubts on the global economic outlook.”

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

 

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