Precious Metals Rally After Agreement On Greek Bailout

Gold, silver, platinum and palladium prices all rallied strongly in early London trade following the news overnight that Eurozone leaders agreed to a €130bn Greek bailout package. The agreement appears to have convinced investors who have been sitting on cash to deploy funds across markets, with silver seeing the strongest immediate price response. Improved sentiment towards Europe has buoyed the Euro/USD exchange rate in recent days, adding further support to precious metals prices.

While a number of hurdles to pushing the package through remain, including agreement by individual European country parliaments, it appears that Greece will – at least for now – avoid the worst case scenario of a disorderly debt default. The boost to risk sentiment from this agreement, together with recent improvements in US macro data and further central banking monetary easing (including China’s 50bp reserve requirement cut last week) is likely to keep a firm tone to the more cyclical precious metals such as silver, platinum and palladium.

Gold demand hits 14-year high.

In the latest edition of the World Gold Council’s (WGC) Gold Demand Trends released last week, it revealed that gold demand hit a 14-year high of 4067 tonnes in 2011, buoyed by record investment demand. Although investment demand jumped 5% to record levels, jewellery demand partially offset the gains, dropping by 3%. The headline decline in jewellery demand masked an interesting underlying trend: China’s demand surged by 13%, while India, the world’s largest jewellery market, experienced a 14% fall in jewellery demand in tonnage terms. The WGC also notes that Official sector gold purchases are now at a 47-year high. Once a source of gold supply, the official sector bought a multi-decade high of 440 tonnes last year.

Riots threaten PGM production in South Africa.

The Rustenberg mine, the world’s largest platinum mine and responsible for 15% of global production, faces prolonged stoppages after riots broke out last week. Implats, the operator of the mine, had re-hired 6,000 of the 17,000 workers it had fired in January 2012 following a strike which the company deemed illegal. Implats has estimated that the 35-day strike has cost the company 60,000 ounces in lost output, around US$155milion. Implats CEO has indicated that production could be restored to normal within’two to four

weeks’, however the rioting is deterring workers from returning to their jobs after one reported fatality. The hit to supply has added further impetus to platinum and palladium prices increases.