Can Platinum Catch Up With The Gold Price?

January 31, 2012 | By | Reply More

Platinum has seen a yo yo 2011. After scaling the heights of $1900 an oz it ended the year at little over $1400 an oz.

As might have been expected, it followed the pattern of gold and silver although it was unusual to see that for much of the last four months of the year it was cheaper than gold.

Since the start of 2012 it has risen $200 to finish on the 29th Jan at $1600 an oz, still $140 lower than gold.

This begs the question as to whether the  January rise is simply because of the bullish sentiment being currently enjoyed by gold together with investors believing that there is yet more mileage for platinum to catch up to its historic place as a more expensive metal than gold.

Ongoing Research Is Cutting the Use Of Platinum In Catalytic Converters

Our feeling is that platinum will not reflect the rise and fall of gold in the foreseeable future. By far the most important use for platinum is in catalytic converters for the automotive industry.

By using platinum and palladium in exhaust systems, environmentally dangerous fumes are minimized but in the process the two metals remain unaltered and retrievable at a cost considerably less than mining for the metals.

Due to the high cost of platinum research has been endeavouring with success to find an alternative to platinum or to at least cut down on the proportion used in exhaust systems.

This has resulted in the much wider use of palladium at the expense of platinum in petrol driven vehicles and more recently in diesel engines. With the worldwide automotive industry also looking to contract in 2012 , platinum demand can be expected to fall while recycling will take up much of the remaining demand.

South African Platinum Production Likely To Fall

On the other side of the coin, South Africa, by far the largest producer of platinum, with an annual mined output of over 70% of the total, is being bedevilled by labour problems, constant electricity  stoppages and a general deterioration of its economic and industrial base.

This situation is likely to  result in a significant fall in production that could last several years with no other producer country able to fill the shortfall.

Platinum Not Seen As an Inflation Hedge

Should the expected drop in platinum demand fail to materialise then clearly the price can be expected to rise although it should be noted that the metal, for reasons we cannot be sure of, does not enjoy the same status as gold, or even silver as a wealth protector, hedge against inflation or call it what you will.

That is not to say that this perception will not change in time, particularly if gold, as some analysts are on record as stating, reaches $3-4 thousand an oz over the next two years.

If this indeed be the case while platinum lags far behind then some more discerning investors anxious to protect the value of their dollar, euro, pound etc., may see salvation in platinum.

Expect Vehicle Demand to Contract

For the present we have little confidence that anything but a worldwide fall in industrial activity is to be expected, particularly with China on the cusp of a slow down and India and Brazil running into stormy times.

These are three of the principal drivers of recent industrial and economic growth so it is a realistic probability that the auto industry will contract as vehicle demand from these countries will not be sufficient to make up the contraction expected from Europe, US and other developed countries.

Platinum Market Smaller Than Silver

 

While gold and silver may be starting on the next leg of their bull run, platinum does seem to have some extra hurdles to overcome before joining those two metals in their advance.

However, the platinum market is even smaller than that of silver and therefore can become highly volatile.

For instance, if a motor manufacturer takes into their head to stock up in a big way on platinum for any reason, the price could go through the roof, the trigger may be a long lasting miners strike in South Africa.

On the other hand the ongoing research may come up with a complete and much cheaper substitute for platinum as a catalyst and that would likely decimate demand for the metal.

With no other viable industrial use for it the jewlry trade could not take up the slack and the price would plummet. Unless you really enjoy a risky gamble, we think gold or silver are odds on favorites to beat the platinum outsider.

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Category: Platinum Group Metals

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