The metals that are presently and clearly screaming very loudly at me are silver, platinum, rhodium and ruthenium, the rarer earths have to be analysed separately, another article from me on another day.
The best long term investment I have ever seen in my 30 plus years of trading, I thought it was easy buying silver between 5 to 7 US$ an oz in 2004 to 2005 or gold lower than US$ 400 when I first invested in metals quite heavily (when my investment trader colleagues thought I was mad), this time around the argument for a medium term investment is a mathematical certainty in its eventual resolution.
Ruthenium for example traded above 1,000 US$ an ounce in 2007, while Rhodium traded above 10,000 US$ an ounce, they collapsed after that into the ‘Global Financial Crisis’ of 2007-09, in fact the whole rare earth and metal sector including precious metals of course came off into late 2015, where we found our eventual base.
Several factors driving my investment thesis in silver, platinum, PGM’s and rare earths are really quite dramatic at this point (not including the perfect storm of the macro-economic backdrop which is hugely bullish for investment metals in of itself )….
• Rare Earths or ‘Strategic Metals’ – New pollution environment laws have been put into place globally, especially in China, which has heavily curtailed the mining of these metals due to the sheer level of pollution it produces, hence production has fallen sharply.
• The modern world is advancing rapidly and because of their unique magnetic, chemical or other properties of these metals make them absolutely essential in the production of turbines, computers and smart phones, high tech, medical appliances and machines, the list is just endless…
• Platinum mining is under intense pressure due to the complete collapse of the metal price, hence mining giants are cutting back on production. In fact the platinum miners have gone long platinum futures which is an extremely rare event as they are always short to hedge their production. They have taken the other side as they know they are reducing supply due to mining losses in a market already suffering from global supply / demand deficit. Price forecasts from here is the easiest trade I have ever seen.
• Rhodium and Ruthenium are PGM’s, they are by-products from mining of platinum, and with the cut backs in platinum mining means a heavily reduced supply of Ruthenium and Rhodium. As you have probably noticed Rhodium has again rallied in the last 2 days and now trading at US$ 2,600 in spot paper markets, these metals are getting extremely tight.
• Oil price has recently shot up to over 80 US$ per barrel, considering mining is purely an energy intensive business and the fact 1 year ago it was trading -47% lower. This has forced up production costs by near 50% for the miners. That is nothing short of a breathtakingly large change in production costs.
• Silver miners are cutting back on production due to enormous losses, while giant mergers are ongoing such as the recent Barrick and Randgold merger. They are not doing this because the industry is healthy, far from it. They are looking to cut back on production and save money where they can.
• Silver miners are suffering massive falls in ore grades over the last decade or so and only getting worse while energy prices have rallied near 50% in the last 12 months – a perfect storm indeed.
• No new large ore-grade finds are coming to market simply because exploration has simply fallen away altogether due to the extreme low prices of the metals and hence not commercially viable.
• Mix this with a continued industrial demand curve higher of these metals, while production falls – does this get any better from an investment thesis?
You can now buy refined pure silver, platinum physical investment products at prices below the overall sustaining costs the actual miners are digging these metals out of the ground.
There will be a price resolution to all of this, this is without any doubt whatsoever, and it will be higher not lower.
This is completely unavoidable, does not matter if its 3 months or 6 months or even 18 months, the simple fact is the longer the prices are down here the sharper the moves to the upside will be due the massive imbalances in the market, production prices and falling supply, ore grades, environment controls, nationalisation’s etc etc….
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About the Author
David Mitchell is a friend and respected colleague of GBA, he has nearly three decades of experience in the financial markets working for some of the world’s leading international banks.
Some of his most notable roles have been Head of Proprietary Trading, Europe and Head of Spot Trading, Asia-Pacific for HypoVereinsbank AG; Chief Dealer and Manager of the G10 Desk for HSBC; and Chief Dealer at the Forex Desk for NationsBank Group, Singapore.
David brings his expertise and energy to the role of Managing Director of Baird & Co Asia, and Founder and Non-Executive Director of Indigo Precious Metals.
IPM Group, indigopreciousmetals.com has a presence in Singapore and Malaysia and trades in physical precious metals. Its primary focus is the supply and physical delivery of investment grade precious metals directly to customers.
David is a skilled economic writer, he produces regular commentary to demonstrate his views on precious metal investing. His articles and reports are insightful, full of factual data and references and are a valuable source to assist with investment decisions. David mixes his connections, experience and analytical mind with an entertaining and explanatory writing style that is enjoyable and easy to read.
I approach my long-term trading strategies from a knowledge based on how all markets and assets classes are inexorably linked to each other within major cycle trends in capital flows.
How GBA and David Mitchell work together
The team at GBA communicate with David Mitchell in several ways:
– David shares his views on precious metal investing with commentary, team training and regular updates about the fiscal environment, Macro Economic drivers and supply and demand scenarios affecting precious metals.
– IPM and Gold Stackers work closely in offering solutions for investors to trade and store precious metals including offshore vaulting of Palladium and Rhodium.
– David has recently been appointed Managing Director of Baird & Co Asia and hence a partner of GBA as we are an official distributor of Baird & Co in Australia.
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