Germany’s constitutional court hearing – a ticking time bomb for the euro?

About nine month ago, in a preliminary ruling, Germany’s constitutional court rejected complaints to stop Germany from joining the EMS and thus paved the way to calm the debt and currency crisis in the eurozone. However, a final ruling after closer examination of the case was still outstanding. The second factor to calm the debt and currency crisis was the decision by the ECB to announce the OMT program of buying government bonds in the secondary market. Constitutional complaints had also been filed at Germany’s constitutional court against the ECB. This past week, the court located in the city of Karlsruhe held a two day hearing on the two cases, the EMS and the ECB’s announcement of OMT.

The Bundesbank, although a member of the system of European central banks and thus part of the ECB, opposes the OMT program, which it regards as being direct state financing and thus violating the Lisbon treaty. Also the German professors of economics, which the court invited as experts followed the argument of the Bundesbank or regarded OMT as being in a legally gray area. It is understandable if lawyers and the seven judges of the court have difficulties to understand economic terms. However, the president of the Bundesbank and the professors should know what the term financing means. But as the DSGE models those professors and the Bundesbank applies does not even include a financial sector, how can one expect they know what this term means. However, a closer look in a dictionary of economic terms might have helped.

There are two ways of financing, either by debt or equity. The later is not possible for a state and can thus be neglected. State financing then implies that a state entity is borrowing from another party, which is the lender. Furthermore, it requires that funds flow from the lender to the borrower. If borrowing is conducted in the form of issuing securities (bills, notes or bonds), then the financing process takes place in the primary market. Transactions in the secondary market don’t constitute financing because no funds will flow to the issuer of a debt instrument but only from the buyer to the seller. However, in the government bond market there is one subtle exemption that government funding agencies retain a part of the issue volume for open market operations and could sell this paper in the secondary market. But the OMT is not designed to trade directly with funding agencies of governments. The counterparts are banks and as long as banks have to purchase the securities first before they can sell them to the ECB, the ECB only operates in the secondary market, which is explicitly allowed by the Lisbon treaty. Thus, the ECB and the German finance minister were absolutely right in their statement that OMT is within the framework of the EU treaty.

If the interpretation of the Bundesbank were correct, then the final consequence would be that all transactions of the ECB with banks refunding loans to government entities were forbidden and would violate the ECB mandate. Also interest rate cuts reduce the funding costs of some governments and thus were indirect state financing according to the Bundesbank argumentation.

The ECB is an EU institution and therefore, any ruling whether the OMT program is compliant with the Lisbon treaty is only in the competence of the European Court. The president of the German constitutional court indicated this also in his opening remarks. However, he also stated that OMT might violate the German constitution and thus, the court is hearing the case because it would be a complicated legal matter. The questions of the judges and their remarks during the hearing had been interpreted by many commentators as an indication that the court would tend towards regarding the OMT program as not in line with the German constitution.

In this respect, the other arguments brought forward by those who filed the legal complaint deserve closer inspection. The first argument refers to the risk of OMT for the national budgets. In the case of a default of a government on its bonds, the ECB would suffer a loss, which would have to be covered by the other governments. Thus, OMT would violate the budget rights of national parliaments. This argument is not convincing for two reasons. First, OMT reduces the risk that a country leaves the eurozone and defaults on obligations denominated in euro. The foreign exchange markets no longer speculate that the eurozone would fall apart. Furthermore, also funding costs of countries like Spain and Italy came down since the market no longer beliefs in a collapse of the euro. And this all took places without OMT being activated. Second, risks for losses exceeding the equity capital could also result from devaluations of other assets held by the ECB. Thus, also holding foreign reserves and gold could be a potential risk for national budgets and had to be forbidden according to the logic of the opponents to OMT.

Another argument put forward by those filing the complaint against the ECB is that the European Central Bank would lack any democratic legitimacy. True, the ECB council members are all not elected by the people of the eurozone directly. However, this is also the case of every national central bank. Furthermore, the ECB is politically independent and not controlled by a parliament. However, this is also the case with the national central banks, which are also independent and not responsible for their decisions to any parliament or government.   

The markets did not show much reaction to the hearing at the German constitutional court. The euro even strengthened against the US dollar in the weekly comparison. On the one hand, a decision is not expected to be announced before September. On the other hand, markets expect that the German constitutional court would not rule against the ECB. However, the court in all its rulings on rescue measures for the euro always emphasized the right of the parliament. Thus, it could not be ruled out that the majority of the judges decide that the Bundesbank is not allowed to participate in OMT. Such a ruling would most likely cause renewed tensions in the eurozone. But more important would be the question how could Germany stay in the EU and the eurozone if the German constitutional court rules that OMT would violate the German constitution while the European Court confirms the ECB’s position that OMT is fully compliant with the Lisbon treaty?

Thus, precious metals might be a good insurance against a negative surprise from the German constitutional court later this year.

US labor market report not strong enough to justify losses of precious metals

Until Friday noon (GMT), all precious metals were up compared to the close of the week before. However, after the release of the US labor market report, precious metals came under pressure. Gold and silver erased the gains made since the start of the week and posted another weekly loss. The PGMs, however, managed to close higher.

We pointed out several times that the major fundamental factors explaining the movements of the precious metals in various quantitative models are the US dollar index, the S&P 500 index as a proxy for economic activity and the price of WTI crude oil as the oil price is one of the major factor for the direction of CPI inflation. These three factors had been positive for precious metals even after the release of the US labor market report with the exemption of the US dollar index, which pared some of the losses suffered earlier last week.

Since the Bernanke testimony to the Joint Economic Committee, the US stock market consolidated as many investors and traders feared that the FOMC could soon reduce the volume of monthly bond purchases. The US labor market report had been regarded as crucial for the FOMC whether to maintain or reduce the magnitude of QE.

From our point of view, the June labor market report is most likely not tipping the balance towards scaling back the bond buying program. The number of additions to the non-farm payroll at 175 thousand was only marginally above the consensus forecast. However, the figure for the month of April was revised down from 165 to 149 thousand new jobs. Lately, the revisions were to the upside.  Thus, on balance fewer jobs than expected had been created. Furthermore, the unemployment rate edged up to 7.6% whereas the consensus among Wall Street economists was looking for an unchanged rate of 7.5%. All in all, this labor market report indicates that economic growth in the US is solid and robust but not strong enough to induce enough members of the FOMC to vote for a reduction of monthly bond purchases.

As the major fear in the US stock market has been the possibility that the Fed might remove the punch bowl, the reaction following the release of the labor market report is logical. Also the rise of crude oil price makes sense as a continued Fed stimulus should be positive for the demand for crude oil. However, the foreign exchange market appears to have come to a different conclusion. A strengthening of the US dollar against the Japanese Yen and the euro following the labor market report only makes sense, if it is interpreted as strong enough to tip the balance towards reducing QE at one of the next FOMC meetings. Also the reaction in the US bond market was very volatile. Obviously, some algo-traders had the report a few seconds before the official release time. Thus, the US 10yr T-note future dropped ahead of the release, but traded up to the high of the day within the first 5 minutes after the official release time. But during the trading day, the market turned around and the yield on the 10yr US T-note rose to 2.16%

Also many gold market analysts argued that reducing the volume of QE by the FOMC would be negative for gold. Thus, the market reaction last Friday indicates that the labor market report was interpreted in the precious metals market as strong enough to induce a sufficient number of FOMC members to vote for cutting the volume of bond purchases.

Some analysts might argue that the rise of the S&P 500 index on Friday by 1.3% was the result of shifts in asset allocation where stocks profited from moves out of US Treasury paper. However, before the release of the US labor market report, it had been argued that a shift in the Fed policy would be negative for stocks and bonds. If this argument were correct, it would not make any sense to allocate now funds out of US Treasuries and precious metals into stocks. Furthermore, it could not explain the price increases in the energy market. Thus, the implication of the June US labor market report for the Fed policy and the volume of QE had been interpreted differently in the various markets. Gold and silver were in the pessimistic camp. However, this might be wrong one as this report is most likely not tipping the balance.

The Fed, QE and stock markets

Hints of Fed chairman Ben Bernanke that the FOMC might decide in one of the next few meetings on modifications of the bond buying program stopped the rally at the US stock market. During the first five month of this year, institutional investors reduced their holdings in the SPDR Gold Trust ETF to invest proceeds in the stock market. Therefore, if the US stock market will become less attractive and enters into a correction, then also the outflows of gold ETFs might came to an end.

We have developed a series of quantitative models for various major stock markets, which are all based on the macroeconomic portfolio theory. This theory is based mainly on the contributions of James Tobin, who became known to a broader public outside the economic academic world due to his proposal to reduce speculation in foreign exchange markets by imposing a tax. The demand for an asset increases with rising wealth and income of an economy. Furthermore, demand will be higher if the rate of return of an asset increases, but higher returns of alternative assets reduce the demand.

In the quantitative model, we focused on macroeconomic variables with a monthly frequency. Therefore, we used some variables, which are closely related with the development of GDP, which is widely used to represent the income of an economy. For the monetary policy impulse, concepts of money stock aggregates could be used. However, better results were obtained for many countries by using interest rates instead. For the S&P 500 index, the yield on 2- and 10yr US Treasury notes entered the model, while for some other indices the spread between the yields for these two maturities of the corresponding government bonds yielded better results. The indicator is constructed as an oscillator to model the yoy percentage change of a stock index, therefore, also the yoy-change of the interest rates are used as explanatory variables in the quantitative model.

To analyze the impact of scaling down the bond purchases by the Fed, we have to analyze, which impact would a gradual reduction of QE have on US Treasury yields for the two maturities. At the short end, the upside potential appears as rather limited for two reasons. First, the purchases in the US Treasury market by the Fed were concentrated on medium- to long-term maturities. Thus, scaling back the volume of purchases by the Fed would not have a direct demand impact on the 2yr US T-notes. Second, the Fed indicated that the extremely low level of interest rates would prevail well into 2015. Thus, the Fed Funds target rate remains at below 0.25% for quite some time and this should be reflected also in the yield on the 2yr US T-Notes. Thus, the most likely case appears to be that the short end of the US Treasury curve does neither provide a stimulus nor a burden for the further development of the US equity market.

A stronger risk for stocks could come from the longer end of the US Treasury market. If the FOMC decides to reduce the volume of monthly bond purchases, the usual c. p. argument is of course that this would lead to lower demand and thus rising yields. However, one has to take also the supply into account. Furthermore, at a higher yield level, institutional investors might increase their demand and thus, compensate the shortfall of demand from the Fed. But one has to keep in mind that the US Treasury market already reacted and the yield on 10yr US T-notes rose in May 50bp from the low of the month. This was the major negative factor for the macroeconomic indicator in May. Last year, the low in the yield on 10yr US T-notes was during the months of May and July, during the rest of the year, yields were higher. Thus, the basis effect should also provide a buffer after July.

Currently, our macroeconomic indicator for the US stock market is still signaling a positive economic environment for the stock market despite the drop in May. Only a decline below a moving average line would indicate that the fundamentals turned negative for stocks. A further rise of 10yr T-note yields to around 2.5% over the next two month could have a negative impact and might be the trigger for a bearish crossing of the indicator and its average line. A gradual increase to 2.5% by year end would have a less severe impact on the indicator. However, even if the macroeconomic indicator turns negative, it is not an immediate reason to become bearish on stocks. A further condition would have to be fulfilled to trigger a sell signal for the S&P 500 index. Thus, gold and silver bulls better don’t bet that a possible FOMC decision to reduce bond purchases would lead to a major correction of the US stock market and would drive investors back into the precious metals markets. 

Fed scaling back bond purchases and the impact on precious metals

It was a volatile week for some precious metals. Silver plunged at the start of the week but ended the week even slightly higher. Gold came under pressure during the testimony of Fed chairman Bernanke to the Joint Economic Committee on the economic outlook and monetary policy. However, also gold pared the loss and closed the week with a gain of 2%. On the other hand, platinum managed to close at the same level as the Friday before while palladium posted a loss.

Initially gold traded higher when Fed chairman Bernanke started his testimony. He defended the quantitative easing and the bond purchase program. For the slower growth of the US economy, he made the fiscal policy responsible. This was interpreted as a continuation of QE. But during the Q & A session, the sentiment in financial and commodity markets changed. One reason was the release of the minutes of the recent FOMC meeting, which showed the committee had an intense and controversial discussion about scaling back the volume of bond purchases by the Fed. In addition, Mr. Bernanke pointed out at his testimony that the FOMC might take a step down in the pace of bond buying in one of the next few meetings.

Thus, the Fed chairman indicated that the balance among the voting members of the FOMC might tip in favor of scaling back the volume of purchases. Thus, the question arises whether a gradual reduction of QE would be negative for gold and silver. We have always argued that QE by the Fed is supportive for higher gold prices, but it is not a necessary condition. In addition, last week, we pointed out that QE per se is not leading to higher precious metal prices, but it is more important which central bank implements QE. The decision of the Bank of Japan to extend its balance sheet had already triggered a wave of Yen selling against the US dollar. The real yield on 10yr JGBs is still positive, while the yield on 10yr US Treasury notes just compensates for CPI inflation. However, to base a decision about capital flows on real yields implies that the purchasing power theory would have to apply in foreign exchange markets also in the short-run. But this is not the case and therefore, investors have an incentive to fund in Yen and to invest in US dollar denominated assets. Scaling back the volume of bond purchases by the Fed is increasing this incentive as the spread of US Treasury notes over 10yr JGBs probably will widen.

However, one also has to take into account the impact of QE on short-term interest rates and not only on bond yields. Especially in the case that scaling back bond purchases by the Fed could lead to yields on medium to long-term US Treasuries are likely to increase and lead to losses, which could quickly exceed the coupon income of one or two years. Given the outlook provided by the FOMC, the short-term interest rates remain unchanged well into 2015. Thus, short-term interest rate differentials are most likely not a strong incentive for flows into the US dollar. But all in all, taking the foot of the gas pedal has probably the effect of strengthening the US dollar, which would be negative for the precious metals.

Economists have the reputation to argue always “on the one hand and on the other hand”. But we can not avoid pointing out that there might be also an effect, which could work positive for gold and silver in the case the Fed reduces the volume of the monthly bond purchases. For many months last year, investors regarded also precious metals as risky assets. When risk appetite increased, stocks and precious metals together moved higher. The correlation was positive. But this has changed with the announcement of purchasing $45bn of US Treasury paper per month. In addition, the fiscal cliff had been avoided and the headwinds from fiscal policy blew less strong than feared. But now, the stance of investors towards commodities changed. The outlook for stock markets was far better as long as the Fed pumps billions of US dollars in the system each month. Investors shifted the asset allocation and preferred stock markets at the expense of commodity markets. Reducing the holdings in gold ETFs was one source of funding investments in stock markets.

As the reaction in the stock market during the Bernanke testimony shows, reducing the pace of bond buying could lead to a stronger correction in stock markets, which some market pundits already view as massively overbought and overvalued. Even if one disagrees with the view of stock markets being overpriced, as we do, one has to take possible herd behavior into account. Therefore, if investors no longer regard stock markets as the more attractive investment, it could be sufficient to stop outflows of gold ETFs for funding investments in equity markets. This could have a positive effect for gold and silver, which might at least partly compensate the expected negative impact from the foreign exchange market. 

The platinum week 2013

Two weeks ago, we gave a brief outlook at the platinum week in London 2013, which took place last week. One highlight was the release of the Platinum Report 2013 by Johnson Matthey. The assessment of the platinum market differs in some aspects considerably from the report of GFMS, which had been released already two weeks earlier.

While GFMS estimated that the platinum market was in a supply deficit of around 80,000 ounces in 2012, Johnson Matthey estimates that the deficit was far bigger at 375,000 ounces due to supply shortfall from South Africa. The primary supply of platinum fell to 5.64 million ounces, which is a decline of 13% compared to the previous year. In South Africa, at least 750,000 ounces of output were lost due to labor disputes and closing of some marginal mines. Supply from recycling platinum declined to only 2.03 million ounces, far less than projected in the 2012 interim report, where a fall to 1.83 million ounces was estimated.  

The total demand for platinum decreased in 2012 by 0.6% to 8.05 million ounces. The gross demand from the automotive sector rose to 3.24 million ounces, an increase of 1.7%. Thus, the weakness in the European car market was more than compensated by rising demand in other regions. The gross jewellery demand was 2.78 million ounces, an increase of 12%. The price discount to gold was certainly one supportive factor beside the expansion of the jewellery distribution network in China.  However, industrial demand fell by 21% to 1.57 million ounces.

However, more important than the diverging assessment of the platinum market in 2012, is the outlook for 2013. Two weeks ago, we wrote that we would be surprised if Johnson Matthey would predict a strong increase of supply for this year. And indeed, JM predicts only a slight increase of primary platinum supply “with broadly the same level of sales from South Africa as in 2012 and slightly higher shipments from other regions”.

On the demand side, Johnson Matthey writes that “gross demand for autocatalysts is unlikely to grow and jewellery demand may well decline slightly. Demand from industry, notably the glass sector, is expected to rebound from the low 2012 level”. Based on the estimate that supply from autocatalyst scrap recycling would grow this year, JM concludes that demand from automotive and industrial sector as well as jewellery should be matched by supply. However, as pointed out, we have some doubts whether supply from scrap recycling will increase sufficiently. If new car registrations remain lackluster in Europe, this implies that old vehicles will be driven longer and thus, less catalytic convertors will be available for recycling.

However, so far demand for investment has not been included in the calculation. Taking this into account and expecting the same pattern as last year, JM concludes that the platinum market is likely in a slight supply deficit this year. This is quite different from the GFMS estimate of a supply surplus. As we regard the estimates from Johnson Matthey as more plausible, we expect that the supply/demand balance remains in favor of platinum.

However, even a further year of supply deficit might not prevent that the price of platinum might be lower on average compared to last year. Our vector autoregressive (VAR) model for precious metals shows that the price of platinum is strongly influenced by the development of gold. And it is the weakness of gold, which also dragged platinum down last week and could weigh further on platinum. Nevertheless, we still expect that platinum will perform better than gold this year. 

Gold’s false break-out not necessarily a positive indication

Until last Friday, it looked like most precious metals would trade sideways for the second week in a row. But the wave of physical buying, which set in after the plunge in mid-April, appeared to peter out as reports of some bullion trading houses indicated. At the same time, large speculators continued to sell gold. On the one hand, they reduced gold futures holdings and increased short positions according to the recent CFTC report on the “Commitment of Traders”. The net long position declined further by 7,629 to 89,423 contracts. The SPDR Gold Trust ETF recorded on Thursday the first increase in gold holdings since March 19. However, it was only the one swallow, which does not make a summer. Therefore, the question appeared to be only when and not if precious metals would break out to the downside.

Last Friday, then the unavoidable appeared to happen. Gold and silver traded below the low of the preceding week. Normally, one would expect technical oriented selling to set in and thus, driving prices further down. In addition, on a break-out day one would expect the close to be near the lowest price of the day. However, at the time of the London PM fixing, the spot market turned around and gold as well as silver pared most of the losses. Both metals closed again inside the sideways trading range, which prevailed until Thursday. Thus, the break-out would be characterized as a false one by chart analysts.

In technical analysis, one of the rules is that a false break-out often leads to a strong move in the opposite direction. However, we have some doubts for several reasons that the trading pattern of last Friday sets the stage for another strong move upwards and that gold as well as silver would complete a flag formation. The first reason is that some quantitative technical indicators indicate the two precious metals are overbought. Especially the stochastics indicator returned back into the neutral zone, which is often a good indication for further weakness to follow. In addition, the difference between the MACD and its signal line narrows, which is also a harbinger that gold and silver might head further down.

The second reason is of course the fundamental factor which led to the break-out of gold and silver. Crude oil was on balance positive for the price development of gold and silver, but showed a similar trading pattern last Friday because it reacted on the same factor, which also pulled the precious metals lower. Also the stock market was positive for the precious metals, but gold and silver have decoupled from the co-movement with the S&P 500 index since November last year. We pointed out several times, that the reason for this decoupling is the change in Japanese policy following the election of a new government. Prime Minister Abe is determined to end the period of deflation and to reach a CPI inflation rate of 2% within a time frame of two years. Also the Bank of Japan has changed its course and got more expansionary. The BoJ embarked on another round of quantitative easing too.

This leads directly to the argument that quantitative easing would be positive for gold and other precious metals. If QE were a necessary condition for a rally in gold, then the program of the BoJ to extend its balance sheet would have to be also positive for gold. Especially, as the BoJ targets a higher CPI inflation rate. There should be no difference whether QE is followed by the Federal Reserve in the US, the Bank of England or the Bank of Japan or any other major central bank. Also the argument that the discussion within the FOMC about the timing of scaling down or even stopping the bond buying program would be the major reason for the decline of gold and silver prices since last November is not convincing. First, this discussion had been made public after gold already traded lower. Second, the Fed policy remains accommodative until 2015.

Therefore, QE is per se not a necessary condition for a bull market in gold and silver. However, this does not imply that QE would not matter at all. Quite the opposite! However, it is the impact of QE on foreign exchange rates, which matters for the precious metals.  This also explains why quantitative easing measures of the Fed have the opposite impact than bond buying by the BoJ. The expansionary monetary policy of the Fed is having a negative impact on the US dollar exchange rate (if not compensated by other factors like the eurozone debt crisis), while balance sheet expansion of the BoJ weakens the yen against the US dollar and other currencies. A stronger US dollar is usually a negative factor for precious metals or other commodity prices.

The trigger for the false break-out of gold and silver was the movement of USD/JPY. Ahead of the G7 finance minister meeting in London on Friday, USD/JPY surpassed the 100 mark on late Thursday afternoon (GMT) and the Yen weakened further in Asian and European trading on Friday to 102 against the US dollar. The QE measures of the BoJ are likely to contribute to further yen weakness. Therefore, we remain sceptical that the false break-out of gold and silver would set the stage for a strong upward move. 

Ahead of the Platinum week 2013

On Monday May 13, the London platinum week will start and one highlight of this day will be the release of the PGM Market Report by Johnson Matthey. The Platinum report will give an outlook for the supply and demand for platinum and palladium in 2013.  This report is one of the most followed in the PGM market. Another widely followed report is the one published by GFMS, which was presented last week in Johannesburg. GFMS gave some insights into the market outlook for 2013 in an interview published at ThomsonReuters.

Reuters reports that according to GFMS, the platinum market would swing to be over-supplied in 2013 due to falling demand from European car manufacturers. The labor unrest last year in South Africa, which accounts for more than 70% of global platinum mine production, drove the market into a gross deficit of 83,000 ounces last year. For this year, GFMS predicts that supply would increase by 2%.  However, the Reuters report did not state any figures and updated figures were not available at Reuters Eikon.

Johnson Matthey estimated in the November interim report that total platinum mine production would decline in 2012 to 5,840 thousand ounces, down from 6,480 ounces in the preceding year as a consequence of the labor unrest in South Africa. However, also supply from scrap recycling was expected to decline to 1,830 thousand ounces. Thus, Johnson Matthey predicted a supply deficit of 400 thousand ounces. Even if the figures were revised down, it appears as less likely that Johnson Matthey would come up with a supply deficit figure close to the one of GFMS mentioned in the press report

We agree with GFMS that the European automobile sector will be a drag on global demand for platinum used in catalytic converters. However, the plunge of new car registrations in Europe, caused by the recession in many countries following the austerity measures, will also have an impact on scrap supply. If private households and companies buy less new cars then old cars will be driven longer. As a consequence, fewer cars will be available for recycling and therefore, also the supply from scrap platinum should be expected to decrease.

Furthermore, Reuters reported that Anglo American Platinum (Amplat), the number one producer, is expected to reveal the outcome of restructuring talks with the government and unions before the start of the Platinum Week. Amplat plans to cut up to 14,000 jobs and to mothball two mines. Cutting stuff and closing mines will have a lasting impact on mine production. Therefore, we would be surprised if Johnson Matthey were forecasting an increase of supply from mine production and scrap recycling to the level in 2011, which was at 8,525 thousand ounces. We expect only a modest increase of total supply in 2013 compared with 2012.

Investment demand for platinum is likely to remain robust. Holdings of platinum by ETFs have declined in April from the high reached in March. However, according to the figures compiled by Reuters, ETF holdings are still far above the level prevailing at the end of last year.

According to the November Platinum interim report, Johnson Matthey expected that jewelry demand increased from 2,480 to 2,725 thousand ounces. For this year, there might be two opposite forces having an impact on demand. The economic recovery in Asia, despite GDP growth rates remaining below levels seeing some years ago, should be positive for platinum demand. However, platinum is trading again above the price of gold, after trading up to 200$/oz discount about a year ago. The shift from a discount to a premium makes gold more attractive and thus, jewelry demand for gold could increase at the expense of platinum demand.

We pointed out several times that there is a closer correlation between the price of platinum and the development of share prices of some major car companies like Daimler. Those companies are less exposed to the falling demand in southern European countries and still have upside potential. While the supply deficit of platinum might be less in 2013 than Johnson Matthey expected in its November interim report for 2012, we still expect platinum to remain in a deficit and not to swing into a surplus. Therefore, the PGMs will probably perform better than gold or silver in the final months of 2013.