This is a well-known story, so I apologise in advance for the next few paragraphs.
Back in the days of big capital warships and the early days of radar, an Admiral decided that his fleet should be battle ready. He assembled his ships and made way in his Flag ship at the head of his fleet, cruising along the coast.
After several hours, a blip appeared on the radar dead ahead. The operator told the Captain and the Captain told the Admiral.
The Admiral asked the Captain what the blip was. The Captain asked the operator. The operator told the Captain that it looked like a small ship. The Captain told the Admiral. The Captain asked the Admiral if they should reduce their speed? The Admiral said “No, we’re a battle fleet”. “Signal the ship to alter course out of our way”. The Captain got the signaller to signal the ship. A signal came back saying “You alter course”. When the Admiral heard this he ordered the signaller to send a message “You must alter your course by 5 degrees”. A reply came back: “No, you must alter course by 5 degrees”. By this time the Admiral is fuming. “Tell that insignificant ship that they will alter course by 5 degrees”. The reply came straight back: “No, you will change course by 5 degrees”. By now the Admiral is completely exasperated. “ I am an Admiral on board a 40,000 tonne Battleship at the head of a fleet of 14 capital warships. If you don’t alter course, I will blow you out of the water.” The final reply was: “Suit yourself, but I am a light ship marking a shifting sand bank. If you don’t alter course, you will run aground”.
Meanwhile, still on a war footing….
What is the difference between the Vietnam War and the current Iranian War? Easy- Donald Trump got out of the Vietnam War.
Until he can avoid the draft on this current squabble, the oil price will remain volatile and will continue to have a knock-on effect on metal prices. Metals used for oil dependent products are under particular pressure; Palladium and Rhodium used in auto catalysts have fared wors than some others, except gold…
Having said that, year-on-year, gold is still up a useful 35%, Palladium 41%. Platinum is faring better at 87% and silver at 130%.
Gold has now overtaken US Treasuries as top Global Reserve Asset. While some Central Banks are selling gold to prop up their currencies, many more are buying gold to get out of devaluing currency reserves.
Once both sides have declared victory and other routes for oil have been established, metals will get back on trend.
In a commodity market, when there is a problem, a solution however expensive will be found. In a previous oil shipping crisis – the closure of the Suez canal- oil tankers just got bigger and sailed round the Cape. So much so, once Suez re-opened, the tankers continued to sail round the Cape as they had grown to large to fit through the canal.
Physical metal continues to flow out of the US Exchanges. The CME is cutting Margin requirements to try and regain volumes it lost when panicking and pushing Margins too high. Some of that metal was arriving in London to restore liquidity, but now it is pretty much all heading to China, directly or via Hong Kong. Hong Kong looks set to become the international metals clearing hub for China, despite a late effort by Singapore. A battle that Hong Kong was always going to win.
Volumes of Platinum Group Metals traded in China have rocketed since trading started on the GFX. However, there is still a lot of unresolved issues around what is acceptable for delivery, despite accepting Platinum and Palladium in sponge form (powder). New York. London and Zurich trade sponge, but do not accept it as Good Delivery. Industry, the biggest consumer of PGM’s want the metal in sponge form as it dissolves in to solutions, unlike ingots.
