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Could Platinum Be South African Central Banks’ Reserve Asset?

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Gold slides

As we see platinum prices plunging in the wake of the Volkswagen emissions scandal, gold too has seen its fourth consecutive day of losses. Gold futures on COMEX (Commodity Exchange) fell 1.03% on the last day of September and closed at $1,115.20 per ounce with a low of $1,100.80.

As seen in the above chart, $1100 seems like a likely resistance level for gold prices, though gold prices have previously fallen beyond that mark and touched a five-year low of $1073 per ounce. Platinum has fallen on six of the last ten trading days.

Gold investors likely kept a watch on the flurry of appearances by Federal Reserve officials last week. Conflicting views by policymakers have only created more uncertainty.

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William Dudley, head of the Federal Reserve Bank of New York, and John Williams, head of the Federal Reserve Bank of San Fransisco, both signaled support for a rate hike in the current year, while Charles Evans, head of the Federal Reserve Bank of Chicago, indicated that rates should stay near zero until mid-2016. A drop in the Asian share to a three-and-a-half year low failed to trigger the haven demands for gold.

Gold reserves or platinum reserves?

Meanwhile, according to a draft agreement seen by Reuters, other factors that could have an immense impact on the prices of gold and platinum include South Africa’s mining industry, unions, and the government’s tilting toward boosting platinum by promoting the metal as a central bank reserve asset. The move may likely be connected to a broad plan to curb job losses.

The draft agreement lays out ten comprehensive interventions, including getting the BRICS (Brazil, Russia, India, China, and South-Africa) group of emerging nations to hold platinum as a reserve like gold. South Africa sits on 80% of the world’s platinum mines.

The mining sector in South Africa has been through carnage due to strikes and depleting mines. This has resulted in further layoffs and the selling-off of distressed mines. Mining companies around the globe are seeing falling profits due to declining gold and other precious metals prices.

Firms that have seen losses on a 30-day trailing basis include Barrick Gold (ABX), Primero Mining (PPP), and Goldcorp (GG). These three companies make up ~15% of the VanEck Vectors Gold Miners ETF (GDX). Other ETFs affected by falling bullion prices include iShares Gold Trust ETF (IAU) and Sprott Gold Miners ETF (SGDM).

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