Wish South Africa produced this stuff
If you’ve followed this blog, you’ll know one reason why these charts are going through the roof. To quote a Reuters article on Friday:
NEW YORK/LONDON (Reuters) - Gold and platinum soared to historic highs on Friday amid a power crisis that shut South African mines, firm oil prices and expectations of more U.S. rate cuts.
South Africa’s three top gold producers and the world’s biggest platinum miner suspended production at all their mines in the country due to a power crisis. […]
Spot platinum hit a lifetime high of $1,697 an ounce.
“Energy is the lifeblood to keep these mines going. South African production is in terminal decline, notwithstanding the five-year bull run in metals, and these outages can only further accelerate their declining position,” Ross Norman, managing director at TheBullionDesk.com, said.
“We hold with our view that gold will hit a high of $1,250 this year,” he said.
Rising prices for precious metals are great for any economy that produces them. Would have been nice if South Africa were mining country.
Update: Replaced the original charts to include data for today, 28 January, courtesy of the excellent little charting tool at The Bullion Desk.
Come on Ivo, the quality of your blog is above this sort of needless circular logic.
Thanks for the compliment, back-handed though it is. Forgive me for making light of a grave situation. I thought it worth keeping a sense of humour, to compensate for optimism betrayed.
But pray tell, what is circular about this logic? An industry can benefit from rising prices (and if it has much market share might squeeze supply to manipulate them), but only if it can then exploit the price rise by selling into it. In the case of precious metals, rising prices used to be good for our mines, but this time the rise is caused by the perceived inability of our mines to keep up production. To the extent that this perception of the future proves true, our mining industry — and by extension our economy — won’t be able to benefit as it would normally do.
What percentage of the gold and platinum prices’ surge would you attribute to the mines shutting down?
I’d estimate at least half, possibly more. But don’t take my word for it. I just analyse these things on the basis of elementary economics. Read the mining analysts who watch these things for a living, both local and foreign.
So in order to take advantage of the surging gold and platinum price, we need to produce gold and platinum, the failure of which is causing the price to surge …
Exactly. What’s circular about that?
Our failure to produce is causing the price to surge. If this were not the case, but the price were surging because of some other factor (such as someone else’s failure to produce, or a flight to safety from higher-risk investments), we could sell into the rising prices and thereby benefit. As it is, we cannot benefit as usual from rising prices because of our own lower production. In other words, this rise in metals prices, because it’s caused by our failure to produce, does not benefit us in the way it would if we were still producing at normal levels. There’s nothing circular about it at all.
I’ve left out the exception I noted earlier, of market manipulation through a supply-squeeze, to make the underlying economic argument clearer. Hope that helps.