Even after a record 57 per cent rally last year, platinum is cheap relative to gold, signaling more gains as demand grows from carmakers and exchange-traded funds.
An ounce of platinum buys 1.42 ounces of gold, down 42 per cent from the record 2.43 ounces in 2001 and 23 per cent less than the 10-year average, data compiled by Bloomberg show. Automakers, the biggest buyers, will expand output 20 per cent this year, said Evan Smith, who helps manage $2 billion at US Global Investors. Hedge funds raised their bets 163 per cent in 2009, about twice gold’s increase. ETF Securities funds lifted holdings to a record 594,465 ounces.
“We are long platinum and short gold,” said Jonathan Barratt, the Sydney-based managing director with Commodity Broking Services, who predicted platinum’s rally in September. “Gold remains under pressure. As inflation moves lower and the dollar goes higher, gold isn’t as solid.”
Bank of America-Merrill Lynch strategist Michael Widmer raised his forecast for this year by 35 per cent to an average of $1,750 and predicted $2,000 for 2011. Standard Chartered has forecast that platinum will be one of the year’s best commodities. Prices may jump 55 per cent to a record $2,400 by mid-year, said Joerg Ceh, head of commodity trading at Landesbank Baden- Wuerttemberg in Stuttgart, Germany’s biggest state-owned lender.
Platinum, which advanced 0.8 per cent to $1,561.50 an ounce at 12:34 pm in Singapore, is still down 32 per cent from its March 2008 record, while gold sold for $1,098.65, within 10 per cent of its peak last month. Buying platinum today and selling gold would return 30 per cent, should the ratio return to the 10-year average of 1.84 times.
A rally in metals would extend gains in shares of Johannesburg-based Anglo Platinum and Impala Platinum Holdings, the world’s biggest producers. Anglo soared to a 15-month high of 819 rand January 5 and closed at 752.36 rand on January 22. Credit Suisse Standard Securities, the joint venture of Credit Suisse Group AG and Standard Bank Group, raised the companies to “outperform” on January 19.
About 80 per cent of the world’s platinum supply comes from South Africa, where power cuts shut mines in 2008 because the generators couldn’t produce enough electricity to meet demand. Energy use may surge again in June and July when the nation hosts soccer’s World Cup.
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Production this year is at risk because “you’ve got potential problems of electricity capacity coming out of South Africa,” said Chad Walls, head of metals trading in the Asia-Pacific region with Fortis Bank in Hong Kong.
When the US was exiting the 2001 recession, platinum and gold traded at a ratio of about 1.60 compared with 1.42 today. Platinum prices gained 70 per cent in 2002 and 2003 and the ratio climbed to 2.30 in April 2004, data compiled by Bloomberg show.
“Platinum prices should be double that of gold,” said Suresh Hundia, president of the Bombay Bullion Association in India, the biggest gold consumer. “It’s only about 40 per cent more expensive. That means it has more room to rise.”
US Global’s Smith is betting on platinum as the world’s worst economic downturn since World War II ends.
“We’ve seen growth coming out of the bottom of the recession and we’ll see that develop into the economic rebound,” said Smith, who oversees the $684 million U.S. Global Investors Global Resources Fund in San Antonio, Texas, which gained 68 percent last year. “The benefit of holding platinum is that it has precious metals characteristics, but also a pretty good industrial component as well.”
Industrial uses, including the catalytic converters that strip pollution from automotive exhausts, represented about 70 per cent of platinum demand in 2008, according to Johnson Matthey Plc. Industrial and dental usage made up about 11 per cent of demand for gold, World Gold Council figures show.
US auto sales will rise 20 per cent to 12.4 million in 2010, the Ann Arbor, Michigan-based Center for Automotive Research said December 15. China, which supplanted the US as the largest market after vehicle sales jumped 46 per cent to 13.6 million last year, may sell as many as 15 million in 2010, according to General Motors China President Kevin Wale.
Platinum may have a “modest deficit” in supply this year, according to London-based Johnson Matthey, the producer of about 33 per cent of the world’s auto-catalysts. An improvement in the economy may spur “some recovery in automotive and industrial demand,” it said in November. Demand for auto-catalysts dropped by a third to 2.5 million ounces in 2009, the lowest level in nine years, it said.
“The fundamentals for platinum are turning around,” said Evy Hambro, who manages the $13.9 billion World Mining Fund at BlackRock Investment Management in London. “We’ve had a large exposure throughout 2009. If there were to be any weakness in the near term because of other factors, we would take advantage of that and add to our portfolio.”
The International Monetary Fund said in October the global economy will expand 3.1 per cent this year after a 1.1 per cent contraction in 2009. The advance of precious metals, especially gold, has been driven by investors seeking refuge from an 8.5 per cent slump in the Dollar Index in the past year and concern that government spending will worsen inflation.
The dollar rallied 0.5 per cent against the six-currency basket this month after a 4 per cent jump in December. The US annual inflation rate was 2.7 per cent in December.