We believe downside risk to the gold price remains. The metal is still below its 200d MA
and is vulnerable from a technical perspective. We have seen very little reaction in Asia
physical demand to the sharp decline in the gold price over the past few days. Gold’s
next major support is at $1,272.

While initial indications are that platinum producers will go to the market to secure
metal for their customers, we believe the news is largely priced in already. In practice, it
should not matter whether producers or consumers buy the metal in the market. If there
is a shortage of metal, the price will go up, irrespective of who buys it.

The platinum price reflects news of some producers running out of inventory already.
The reason for this, we believe, is that the speculative market remains very long
platinum. As pointed out in yesterday’s Commodities Daily, at 61.4% the net
speculative length as a per cent of open interest is high, well above the 1-year and
5-year average levels of 46.8% and 52.7% respectively. While the sharp rise in net
speculative length as a per cent of open interest, from 36% at the start of 2014 to the
current 61.4%, follows the ongoing strikes in SA, we believe it raises the risk of a sharp
sell-off should strikes end. We are also concerned that the platinum price has not moved
higher despite the strikes and substantial rise in speculative length.

Silver is finding good support in the $19 – $20 range. This range has provided support
since July last year. From a risk/return perspective, we believe that it is not worth
shorting the metal here. However, we note that should gold drag the price of silver
below $19.00, more downside may open up.

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