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Economic Growth, Tight Supply Boost ‘Industrial’ Precious Metal ETFs


Economic growth in the US and China is supportive of platinum group metals and silver ETFs. Although the headline US 4Q GDP number was disappointing, there was considerable strength in consumption and business investment growth, while most of the drag came from a temporary slowing in government spending and net exports.

Indeed, more forward looking data such as the January US payrolls, manufacturing ISM and December durable goods orders indicate that the US recovery remains on track. 157K new jobs were added in January and there were sizeable upward revisions to the previous two months of US payrolls data.

Manufacturing activity expanded for the second consecutive month according the ISM report. Durable goods orders surged 4.6% in December. Chinese manufacturing PMIs were a touch lower in January than December, but remain in expansionary territory according to the Chinese National Bureau of Statistics.

Palladium and Platinum prices squeezed higher by rising costs, falling supply and rising demand. Eskom announced that it will raise electricity prices by 16% per annum over the next five years, which will considerably increase costs for the energy-intensive mining sector in South Africa. The additional cost burden comes on top of escalating labor costs and miner strikes that have forced many South African miners to cut back on production. Platinum and palladium markets are already forecast to be in deficit this year. Demand for these metals for use in auto-catalysts may rise even further in China where emission control standards are going to be raised in line with European standards. Platinum ended the week 0.5% higher. Palladium, which faces tighter supplies due to Russian state inventories being drawn down, rose 2.8% and is at the highest level since September 2011. Flows into palladium ETPs rose by 1% last week and holdings remain at the highest level since August 2011.

Key events to watch this week: ECB, BoE and RBA meetings, CBO US budget outlook. Although none of the central banks that will meet this week are expected to change interest rates or the scale of asset purchases, the various policy committees’ views on divergent economic data will be of interest. Given the strong pace of pay-back of long-term repos to the ECB, investors will listen intently for any hint of retiring the extraordinary policies early than previously assumed. The US Congressional Budget Office’s Budget Outlook report will also be closely scrutinized given the upcoming April deadline for US politicians to agree on a budget. The CBOs projections will highlight any room – or lack-thereof – for maneuver.

ETFS Physical Silver Shares (SIVR)