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Pt may stage short-lived rally to $1,600/oz

David McKay | Mon, 14 Apr 2014 20:59
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[] – THE price of platinum could rally towards $1,600/oz if a 12-week strike over wages in South Africa persisted, but a significant cache of inventory would keep the metal on a tight leash.

Such was the message from Standard Bank which published its quarterly commodity forecast on April 14. It expected gold to bottom this year, iron ore to run into headwinds amid 100 million tonnes of excess supply, while the price of other industrial metals, aluminium amongst them, would be capped.

in general, it was a report tinged with bearish sentiment, and founded on the expectation of 7.1% economic growth in China, below the 7.5% expected, and likely to be followed by 7% growth in 2015.

Water de Wet, who heads Standard Bank's commodity unit, said China would seek to re-balance its economy resulting in bouts of commodity price weakness. "Economic stimulus will be behind the curve," he said.

The comments on platinum will certainly resonate as there seems to be little panic among customers on the evidence of the platinum price, up 5.4% since January, which seems modest given the fact that a substantial portion of South Africa's primary production has been shut pending a wage agreement with AMCU.

"From a tactical perspective, we believe that being short platinum below $1,400 holds little value from a risk/return perspective," said De Wet. "We also believe that although rallies in platinum are likely to fade, a spike towards $1,600 is likely while the strikes in South Africa continue.

"That said, in line with our forecast for the rest of 2014, rallies above $1,500 should fade. Beyond 2014, upside remains," he said.

The price of gold would bottom in 2014 at about $1,300/oz, possibly in the second or third quarter. Downside for gold remained whilst interest rates continued to adjust. "So gold won’t recover until the US interest rate environment normalises," he said.

One ray of light was the prospect of copper remaining on relatively thin levels of inventory with new supply far from guaranteed. While inventory levels of industrial metals was expected to remain high, copper inventories would move to 16 days.

This was still lower than its levels in 2010, said De Wet. "Hence, there is support for the copper price," he said. "There will be a small surplus and the risk of deficit in 2017 is great. We see substantial upside and think in 2017 copper will trade at $7,000 to $8,000/t," said De Wet.

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