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									JUNE 2004

    All the precious metals consolidated in May and as
  good physical demand returned, price started to climb

  • Higher oil prices raised the possibility that interest rate
     hikes may be delayed. This dampened the dollar and
                     supported Gold prices

  • The funds have cut their long position by 56% and the
     short position has increased by 59%. The market is
       therefore vulnerable to further upside moves if
          geopolitical events trigger short-covering

  • Good consumer demand was evident as prices slid, but
     the buying season is now over in India until August

  Silver’s dramatic sell-off overshot on the downside and
  prices climbed off the lows on good consumer demand

    • Investor activity has been all important to the rally in
   Silver prices and a period of further dollar weakness may
          now be needed to see investor interest return

     • PGM’s fundamentals are sound which should
        support prices. Platinum jewellery offtake is
      becoming a swing-factor in demand, with demand
     from the auto industry, mine production levels and
               fund activity driving the price

  • Palladium demand should pick-up as it regains market
              share in the auto-catalyst market
Gold consolidated in May, but signs of        With Gold prices now rising again, there
dollar weakness now provide support           is a danger that short-covering could lead
Moves by China to curb run away               to another move higher. However,
economic growth and better than               overall the market is thought likely to
expected US economic data, sparked            consolidate further, unless there is
aggressive liquidation selling across all     another shock to the global system.
commodities and other financial asset
classes. The change in tack and move by       Pause for thought
financial institutions to unwind carry        Now that the market has had another
trades and liquidate commodity positions      shake-out, it is a good time to review the
saw Gold prices fall back to $371.70/oz,      outlook. The bearish argument mainly
before prices stabilised. The extent and      revolves around the opportunity costs of
sharpness of the move highlights how          holding Gold. Better corporate earnings,
over extended the funds had become.           a pick-up in global economic growth
The pull back in price was, however,          prospects in the US, Japan, Asia and
welcome relief for the jewellery trade        parts of Europe, should lead to stronger
who were keen buyers into the sell-off.       equity markets and higher interest rates,
While prices held below $380/oz there         all of which make it harder to justify
was good two-way business with fund           holding Gold.
selling being match by volume consumer
buying.                                       The bullish argument
                                              However, the bullish case is still
Geopolitical events push oil prices up        relevant. The US dollar is showing signs
However, an escalation of events in the       of weakening again as the US deficits
Middle East with the assassination of the     remain untackled. In addition, US
Izzedine Salim, the head of the interim       foreign policy lacks popular support
governing council in Iraq, and attacks on     abroad and there is a chance that the US
oil targets in Saudi Arabia and Iraq          may suffer as foreign investors and
raised geopolitical tensions and pushed       central banks diversify away from US
oil prices through the psychological          assets. Such a move would damage
$40/barrel level. This raised fresh           economic growth in the US and
concerns over economic growth                 undermine confidence in the dollar. In
prospects. In addition, a worsening of the    addition, the way the Middle East
US trade deficit led to renewed dollar        situation is deteriorating suggests that
weakness. All these factors combined,         there is a real threat to oil supplies. This
managed to stop the retreat in Gold           could de-rail or delay the return to
prices and encouraged fresh buying and        sustainable economic growth which
short-covering.                               could also delay a rise in interest rates
                                              and put further downward pressure on
Fund long liquidation and short selling       the dollar.
Since Gold prices peaked on 1st April
2004 at $431.50, prices have fallen 14%.      Shocks create spikes
During this time the structure of the Gold    Back in the 1970’s it was high oil prices
Futures market has changed. CFTC data         that sparked the inflationary run that
shows that the net fund long position has     caused a short-covering spike in Gold
fallen from 144,253 contracts to 22,209       prices to $850/oz. Although the world is
contracts as of 25th May 20004. During        a very different place now than it was
this period the gross long position fell      then, it is worth remembering that market
from 176,285 contracts to 76,713              dynamics, such as short-covering, forced
contracts, while the gross short position     hedge unwinding or speculative/fund
increased from 32,032 contracts to            buying, can have far reaching
54,504 contracts. This highlights the fact    implications on prices in the short-term.
that there has been significant liquidation
selling as well as fresh short selling.
                                                                                             2 of 10
A Gold market open to all                     The break of the one year trend line and
Although not yet a major factor in the        the lower low established in May 2004
Gold market apart from in India, mass         suggests that prices are unlikely to see
ownership of Gold is being given every        the uptrend resume in a hurry. Overhead
chance to succeed. The launch of              supply either side of $400/oz is likely to
Exchange Trade Funds, ETF, for Gold,          take some eroding and it would take a
such as Bullion Securities and the recent     move above $406/oz before the chart
launch of China Merchant Bank’s retail        looked bullish again. Until then, the path
market for Gold, are making it much           of least resistance looks to be to the
easier for individuals and financial          downside.
institutions to buy bullion. The fact that
the Gold market has become more
accessible may well create greater
demand for Gold amongst pension funds
and individual investors, who
traditionally have found it hard to buy

Physical demand rebounds
Physical demand for Gold picked up well       A very mixed outlook
in May as weaker prices prompted              Overall the medium term outlook for
jewellery manufacturers to make spot-         Gold is somewhat confusing. The big
deferred purchases and to restock. The        picture view is still bullish as so much
pick-up in demand saw Gold premiums           uncertainty surrounds the global financial
rise, with premiums in Singapore and          markets, the dollar, oil prices, the Middle
Hong Kong rising from flat to a premium       East and terrorism. As a result it seems
of up to 50cents/kg. In the Middle East,      likely that investment managers will
demand was also reported to be strong as      continue to diversify into precious metals
traders restocked in anticipation of strong   as a form of insurance.
demand. In India, the lower prices came
at a good time as early May saw the peak      Will the geopolitical scene improve?
of the wedding season, but demand is          That said, with the US election
now likely to ease off until later in the     approaching and some good economic
summer. However, with India looking to        data starting to emerge, it would only
increase its jewellery export business,       need some of the heat to be taken out of
swings in seasonal demand in India may        the Middle East situation, for investors’
become less pronounced. In Japan,             confidence to return and for equities and
demand in April surged 133%, yoy, to          other assets to look attractive again. This
6,800 kg, on the back of weaker prices        in turn may keep the funds out of Gold
and greater confidence in Japan’s             for a period of time.
economic outlook. In China, jewellery
manufacturers are switching to using          In summary, the bullish case for Gold
more white Gold, as high Platinum prices      hangs on the potential for various
have reduced their profit margins. As         unwelcome events to unfold. If these
Platinum prices have risen, jewellery         events do not unfold, then Gold prices
manufacturers have had to absorb the rise     may drift further. In the run up to the US
in Platinum prices. Margins are reported      election a lot of energy is likely to be
to have fallen as low as 2%, whereas          focused on improving outlook for the
white Gold jewellery can still generate       US. Obviously another major terror
margins of around 25%.                        attack or shock to the financial system
                                              could change everything, but if the status
The Chart outlook is more bearish             quo is held or improved, then Gold may
than bullish for the medium term              suffer as the opportunity cost of holding
                                              Gold increases.
                                                                                            3 of 10
Gold Statistics                   2000     2001     2002      2003 4Q 2003 1Q 2004        Apr-04   May-04
London Prices (US$/oz)
AM fix                          279.25    271.19 310.44     363.83   392.32     408.40    404.85   383.95
Pm fix                          279.05    271.04 310.21     363.32   391.93     408.45    403.26   383.78
Average                         279.15    271.12 310.32     363.59   392.12     408.43    404.06   383.87
Parity prices
Australian - A$/oz                  482       523     570     558 543.10        534.04       540      544
South Africa Rand/kg             62,342 72,393 101068      85445 82143          85972      81805    81328
Japan Y/g                           967   1,022      1203 1305.07  1323          1359       1343     1333
India Rupee/oz                   12,545 12,910      15106  16954 17865          18510      17742    17370
Lease Rates
1 Month *                          0.62        1.3    0.27    0.08  0.05           0.06     0.04     0.06
3 Month *                          0.93      1.32     0.39    0.13  0.11           0.09     0.11     0.12
6 Month *                          1.12        1.4    0.54    0.23  0.18           0.15     0.18     0.16
12 Month *                         1.22      1.68     0.89    0.40  0.41           0.31     0.28     0.27
COMEX - futures contracts
Stocks ('000oz)                   1,701     ~        1692    2643  3031           3489     4,142    4,392
Vol (million contracts)            6.63   6.79        9.02  12.24
OI ('000 contracts)               111.3     ~        162.7    229 274.67        266.27     246.5    234.6
CFTC (futures only data)
Net Spec position Long (Short) (14,259)     ~       31940  70888 103747          83875    57,804   22,209
Stocks ('000oz)                   285.7    234        242     234   233            238     204.6    202.7
Volume ('000 contracts)           7,842 9,791        1544  2,220   1613           1964     1660     1191
OI ('000 contracts)               218.1    308        384     413   403            368     352.3    352.3
Other Indicators
FT Au Mines Index                   576    824       1142    1395 1768.0          1662    1379.8     1510
Dow Jones Index                  10,787 10,130       9190    9035 10012          10476    10225     10188
US$ Index                           112 117.75        111       95 89.95          87.37    90.48     88.95
Gold Bullion Imports (tonnes)
Dubai                            258      270       188
Hong Kong                         129.1 88.4 to Nov
India                             533.7    598      408
Italy                             392.2   375       350
Japan Investment Demand              52   64.8
Singapore                         218.6 124.5        84
South Korea (Demand)              120.5 124.5
Taiwan                             99.6   52.4
Turkey                             205    110       130
Data: Financial Times; Bombay Bullion Association; LBMA; TOCOM; COMEX; CFTC, REUTERS
Figures are period averages unless marked by *, indicating the period end. OI= Open Interest on the exchange
~ = data not available, italics = estimates

                                                                                                               4 of 10
Silver prices consolidate above                 demand for white jewellery gained in
$5.50/oz before rechallenging $6.25/oz          popularity. Demand for Silver in
After the rapid sell-off in April, Silver       photography fell, but despite the boom in
prices started to consolidate in early May      digital photography in the developed
with prices holding above $5.48/oz. The         world, there is still growing demand for
scale of the correction, with prices            Silver film in China, India and Russia,
retreating 35% from their April highs,          were photography is becoming more
highlighted how overbought Silver had           popular, but where digital photography is
become. But judging by the subsequent           still too expensive.
bounce to $6.25/oz, it also appears that
the sell-off overshot on the downside as        Funds have more than halved the long
well. Silver prices are now likely to           position. CFTC data shows that the net
spend more time consolidating, with             long fund position has fallen to 23,340
industrial demand supporting any dips           contracts, down from April’s highs of
and fund selling capping advances.              56,091 contracts. Whether funds return
                                                to the market in the near term will
Silver to benefit from better economic          depend to a great extent on the weakness
outlook and further investor interest           of the dollar and on the demand for safe-
The outlook for prices in the next few          haven investments. With the US heading
months will to a large extent be                for an election, it seems very likely that
determined by the outlook for economic          all efforts will be made to prevent any
growth and hence demand for industrial          deterioration in the US financial markets.
metals and also on investors appetite for       Obviously another global shock could
Silver. The 2004 World Silver Survey            change all that and trigger a rush into
showed that investor interest in Silver         safe-haven assets. However, with good
was one of the main driving forces              economic and corporate news now
behind the price rally. Investors were less     emerging and with interest rates expected
willing to sell their stockpiled Silver. In     to rise, the opportunity cost of holding
2003, investors sold 43.5 Moz, this was         precious metals will increase.
down from 81 Moz in 2002 and
significantly below the peak in
disinvestment of 222 Moz in 1997. This
is an interesting development as over the
past 15 years the Silver market has been
in a supply deficit, with the gap made up
each year by a drawdown from stocks.
However, if less Silver is now made
available to the market, as stock holders
hold on to their Silver, then prices will
need to rise to attract further Silver sales.
It is important to remember that even           In summary, a major speculative rally in
though stocks may seem plentiful, they          Silver has now been corrected and a
may not necessarily be available for sale       period of consolidation above the 1998 to
at the prevailing price.                        2003 highs (top line on the chart) looks
                                                likely. Fundamentals are sound, but are
Fundamentals generally constructive             unlikely to cause significantly higher
The World Silver Survey portrayed a             prices on their own. Better economic
mildly bullish outlook. Silver mine             times would help boost demand, but it
production was down 3.2%, Silver                would probably take further dollar
demand rose 1.1%, with industrial               weakness, or another global shock, to see
demand rising 3%, mainly due to a               large amounts of speculative money flow
recovery in electronics in East Asia and        into Silver again. Therefore trading in the
especially in China. In addition,               band between $5.50/oz and $6.50/oz is
jewellery demand had a strong year as           expected over the coming few months.
                                                                                              5 of 10
  Silver Statistics
                            2000     2001     2002     2003 4Q 2003 1Q 2004 Apr-04 May-04
London Prices (US$/oz)
Daily Fix                    4.95     4.39     4.60     4.88      5.27     6.66     7.06     5.85

Parity (London) prices
Japan (Y/g)                  17.2    ~        17.85    17.50     17.77    22.17 23.47       20.32
India (Rupee/oz)              223    ~       223.96   227.32    239.95   301.76 310.00     264.13

COMEX – futures contracts
Stocks (Moz)*              94        ~       105.78   111.04    122.50   123.17    122.7    118.4
Vol (million contracts)  2.11       2.56       3.04     4.11
OI (‘000 contracts)*     72.3        ~        79.45    94.67    100.24   114.72    106.5     85.7

CFTC (Futures Only Data) non-commercial
Net Positions *         (760)   ~     27624           33414     39720    55497    34,631   23,340

Stocks (Moz)*                 1.7   1.29       1.06     0.75      0.60     0.49     0.46     0.61
Futures Vol (‘000 contrac   450.6   660.8     72.57    89.71      91.3   195.18   137.90    96.80
Futures OI (‘000 contrac       19   22.1      19.96    21.32     19.98    30.27    27.23    27.23

Other Indicators
Gold/Silver ratio*            60    59.2      67.73    74.06      72.5     58.0    63.92    65.78

Silver Bullion Imports (tonnes)
USA                      3808.6     2938
UK                       1434.1      ~
Japan                    1452.5      ~
Germany                  1198.1      ~
India                      3868     4646     3565
Italy                    1980.2      ~
South Korea                 161      ~
Taiwan                      204      ~

* figures are period averages unless marked; ~ not available.

                                                                                                    6 of 10
The PGM’s spent the first part of May         Japan’s demand for Platinum jewellery
consolidating, then edged higher again        would be expected pick up again.
After the aggressive sell-offs in April
which were caused by fund long
liquidation selling, the PGM’s have
managed to move higher again. The
rallies into early April had been
excessive and the market badly needed to
correct. The corrections seem to have run
their course, although further tests of the
April/May lows may yet be seen, but
with the PGMs’ fundamentals looking
sound, further price rises seem likely
over time.

Ever growing demand from autos
The demand outlooks for Platinum and
Palladium are healthy. Platinum demand
from the emission-control market is
strong and should see good all round
growth as environmental standards are
tightened and legislation is adopted by
more countries, especially in Asia and        Further consolidation, then higher
South America. This should also benefit       Technically, the long term chart on
Palladium demand as new car models are        Platinum has broken an intermediate up
introduced that have been designed to         trend line and prices have now rallied
use catalysts made from both Platinum         back to rechallenge that line, which is
and, the now much cheaper, Palladium.         now expected to turn prices lower again.
                                              Prices are still comfortably above the
Jewellery to act as swing-factor              long term trend line which should
Jewellery demand accounted for around         provide good support. Palladium has
35% of Platinum off take in 2003,             corrected from its spike higher and is
although the recent higher prices have        likely to trend higher and build a base
since seen demand fall. With white            around the $250/oz level.
jewellery in high demand, white Gold
and Palladium have been used instead of       In summary
Platinum, but these are considered            The fundamentals for the PGM’s are
inferior. With China accounting for 55%       constructive and this should support
of the Platinum jewellery off take, it        higher prices over the longer term and
seems likely that demand for Platinum         after perhaps some further consolidation
jewellery will always be lingering and        in the near term. Investor interest is
will rise as incomes rise or Platinum         expected to remain fairly high as
prices fall. Robust demand for Platinum       economic recovery would bode well for
jewellery was seen up until prices rose       industrial demand which may prompt the
above $750/oz, this level should              funds to get long again. In addition, the
underpin prices in the future. In the mid-    ongoing uncertainty that the Middle East
1990’s Japan was the main market for          is generating, especially with regards to
Platinum jewellery and accounted for          oil prices, is likely to see continued
78% of jewellery offtake, but after years     interest in PGM’s from investors.
of subdued economic activity, its share       Overall, a combination of an improving
of offtake has fallen to 27%. If economic     economic outlook, uncertainty on the
activity gains momentum and leads to a        geopolitical stage and the strong PGM
pick-up in disposable income, then            fundamentals should lead to steady PGM
                                                                                          7 of 10
PGM Statistics
                         2000            2001      2002      2003 4Q 2003     1Q 2004     Apr-04    May-04
London Prices (US$/oz)
Platinum               544.00         533.29     540.57    698.24    735.25    867.55    887.58     813.33
Palladium              682.00         612.85     341.41    204.95    206.54    242.82    300.87     249.04
Rhodium                 1,937          1,604     841.32    531.44    501.68    630.81    812.77     816.67

Japanese Parity Prices (Y/g)
Platinum                1,887          2,009      2,095     2,501     2,536     2,887     2,951      2,825
Palladium               2,364          2,309      1,325       736       713       809     1,000        865

South African Parity Prices (Rand/kg)
Platinum               121,569 142,398          175,810   164,523   159,931   182,521   179,700    172,317

NYMEX Stocks ('000oz)
Platinum              30.80             ~         15.76     13.88     17.07     11.37     11.90      11.40
Palladium              8.20             ~         10.81    102.94    202.87    452.50    685.10     685.10

CFTC Futures Only Data Long / (short) non-commercial
Platinum                3,050         864 2,454.25          4,048     5,091     3,481     1,113        337
Palladium           -   66.00      n/a     - 137.20         1,529     2,164     5,126     4,090      2,386

Tocom - Platinum
Stocks ('000oz)             19.80      18.10       8.73     16.91     17.92     17.11     17.42      18.58
Vol (Million contracts)     10.64      16.25       1.18      1.14      1.00      1.41      1.40       1.05
OI ( '000 contracts)       288.30     260.50     218.84      220       228       203     168.37     168.37

Tocom - Palladium
Stocks ('000oz)               1.10       1.86      1.62      5.79      7.46      9.47      7.20       7.40
Vol ('000 contracts)        999.00   1,200.00      2.52     25.65     28.90     49.28    104.90      31.66
OI ( '000 contracts)      1,007.00     117.00      2.97     11.10     15.34     19.12     21.32      21.32

Other Indicators (US$/oz)
Pt-Au spread           344.20         208.00     234.37    336.79    335.33       470    421.50     451.00
Pt-Pd spread              (138)        45.00     213.52    496.23    502.00       615    561.00     591.00

Platinum Bullion imports (kg)
USA                    67,979          2,478      ~
Japan                  53,024           ~         ~
Switzerland #          (1,842)       60,762       ~

PalladiumBullion imports (kg)                                       Aug
USA                  153,641         169,940      ~
Japan                  86,811           ~         ~
Switzerland #        (12,260)        90,604       ~                   3,730

                                                                                                             8 of 10
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