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First the nuclear deal - Now South Africa and Russia want to get even deeper in bed together

by , 13 October 2014

It was with shock that I learnt about the nuclear deal the South African government signed with Russia. Who would want a nuclear reactor designed by the people that proudly brought Chernobyl to the world?

But by the looks of things our government is considering getting into bed with Russia in a big way.

You see, the Russian government wants to set up an OPEC style cartel - but for platinum and palladium. And it needs our government to buy into the idea.

The new platinum ‘OPEC’ explained

Platinum prices have tumbled about 20 percent since Russia and South Africa first discussed a plan in March 2013 to set up a bloc to manage PGM (platinum group metals) prices.

But since then things have gone quiet. Until now that is.

Now the Russian Minister of Natural Resources, Sergei Donskoi, confirmed that the two countries have a meeting scheduled for next month to “put together the interests of the two countries in this field”.

One option he presented is for the central banks to boost purchases of platinum and palladium.

And indeed, between South Africa and Russia they would control more than 80% of the entire world’s platinum and palladium reserves. If central banks step in and control the sale of PGMs it would certainly have a massive effect on the price of these metals…

But is it possible? Can the two countries actually set up a cartel like this?

Is Russia looking to ‘put together interests’ or serve its own interest?

The thing is – while setting up a cartel and getting central banks to buy platinum and palladium isn’t that hard.  The important question here is a different one…

You see, Russia produces the majority of the the world’s palladium while South Africa is the majority platinum producer.

In my opinion Russia would serve its own interests and try to support the palladium price. That’d leave South Africa in the cold with the cartel. Our reserve bank is too small to support the platinum price on its own. You’d still need some Russian backing for that…

But with platinum at a five-year low in dollar terms, there’s a lot of pressure on miners, and our government to do SOMETHING.

Add in the fact that even Norilsk, the Russian palladium miner, is raising capital to buy up supply of palladium in the market and it seems like there just might be something in it for this cartel…

What’s your option if the platinum cartel actually sees the light of day?

There’s no question about it, both the platinum and palladium markets are tight when it comes to new production coming online.

The only reason their prices are still under pressure is because of above ground supply of the metals from Swiss vaults and US ETFs.

So a cartel buying up of the extra metals would see the price of these two PGMs run fast.

But while most investors will end up buying platinum miners; my first choice would be the actual metals.

Platinum, especially since it’s at a five year low in dollar terms, is a great bet.

Your first choice in that regard would be the Absa NewWave Platinum ETF.

The platinum ETF is in South African rands though, so you won’t get the exact same growth as the platinum price rises in dollar terms because the rand would probably strengthen somewhat as well. But it’s a great deal less risky than buying into a platinum miner like  Lonmin!

Here’s to unleashing real value

Francois Joubert

First the nuclear deal - Now South Africa and Russia want to get even deeper in bed together
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