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  • Precious metals prices dictated by investment at the margin



    Hello and welcome to this Mineweb.com Newsmaker. Joining me live from the 2012 Mining Indaba in Cape Town is Paul Walker. He’s the global head of precious metals at Thomson Reuters GFMS, and as according to his presentation a lapsed fundamentalist. What exactly does that mean in the context of precious metals?
    PAUL WALKER:  Well I think it means that when you look at the underlying supply and demand fundamentals - if you look at mine production, add in scrap and compare that to what’s happening into demand, you won’t always be able to explain the trajectory or understand the trajectory of the price. Take the people back to the 1990s when there was this thing called “the gold gap” which is this difference between what was coming out of the ground, what was coming out in scrap and where demand was. And demand was significantly larger than these other variables and if you looked at that gap you said “well there’s a deficit in this market to use the parlance of the base metals industry, you’d have expected gold prices to have gone up. Quite the opposite was happening - gold prices were under relentless pressure in the 1990s. fast forward to the 2000s and what have you seen - fundamentals that would in the case of say platinum, have dictated the price that should have if anything have been softer or under pressure, we suddenly saw platinum prices going to $2200. What on earth was underpinning that? It had actually very little to do with the core underlying fundamentals of these markets, and everything to do with investment flows into the market. And I think until analysts and the gold mining and the platinum mining industries can get their head around this conundrum, they’ll never really understand why their product price does what it does and that’s kind of what I was trying to address yesterday.


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